2004 Software Industry Equity Report.Pdf

Software Equity Group, L.L.C.

ECONOMY Figure 1: U.S. Gross Domestic Product 10% The U.S. economy expanded 4.4% in 2004, led 8.2% by consumer and business spending and inventory building. It was the strongest 8% improvement since GDP rose 4.5% in 1999, and was a marked increase over the 3% growth rate 6% 4.7% 4.5% of 2003. Spending on equipment and software 4.0% 4.0% 3.4% rose 14.9% in 2004, and companies boosted 4% 3.1% 3.3% 3.1% inventories at a $45.8 billion annual rate. However 1.9% 2.0% the economy slowed to a 3.1% growth rate in the 2% 1.3% fourth quarter, hampered by a record trade deficit. Economists had forecast a 3.5% growth rate in 0% the fourth quarter. 2002 2003 2004

Consensus estimates peg 2005’s GDP growth rate at 3.6%, with business investments leading The trade deficit, which soared from 1% of GDP in consumer spending. 1994 to 5% of GDP in 2004, ballooned to a $609 billion annual rate, including a record $60.3 billion The Conference Board's Index of Leading in November. A surge in oil imports accounted for Economic Indicators, an important short-term more than two-thirds of the increase in real deficit, forecasting tool, rose 0.3% in November and but exports also weakened across all major 0.2% in December, reversing five consecutive categories. The weakened dollar and resulting months of decline and alleviating some anxiety higher cost of foreign imports provided some about Q4’s lethargic GDP growth rate. Positive hope the mounting deficits could be slowed. contributors included consumer confidence, stock Prices of non-oil imports rose 0.5% in November prices, real money supply and reduced claims for and 4% year-over-year, helping to make domestic first time unemployment benefits. Declining goods more competitive and U.S. exports more indicators included building permits and new attractive. manufacturing orders for both non-defense and consumer goods. In a January 24 statement, The U.S. capital spending has improved steadily since Conference Board declared “the economy is likely Spring 2003, growing in real terms at an annual to continue expanding in the near term, but at a rate of more than 10% through the end of 2004, slower rate than has been typical in the past.” and adding more than 1% to real GDP growth. Figure 2: 2004 Major Market Indices Compared with the SEG-100 Market Performance 10%

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-15% January February March April May June July August September October November December

S&P 500 Nasdaq Dow SEG 100

The surge reflects a broad-based improvement in Figure 4: SEG-100 TTM Revenue Growth conventional drivers of capital spending, including from 1Q04 to 4Q04 a rising return on capital, increased utilization of 50% capacity, and greater availability of credit. 60% of 40% companies in a survey published Jan. 24 by the 30% National Association for Business Economics 20% expect to increase their capital spending in 2005. MEDIA N: 8. 9 % 10% Absent a major economic slowdown, considerably 0% greater weakening of the dollar, or a steep decline -10% in stock prices, interest rates will continue to rise in 2005, most likely at about the same rate as in -20% 2004. The general consensus is the Federal funds -30% rate will increase to 3.5% by the end of 2005. -40% -50% After two years of anemic job growth, U.S. payrolls expanded in 2004, with 2.2 million new Figure 5: SEG-100 TTM Earnings Growth jobs added - the largest annual gain since 1999. from 1Q04 to 4Q04 Monthly payrolls grew by an average 186,000 new hires a month in 2004, compared to an 200% average loss of 5,000 a month in 2003. In 160% December alone 154,000 jobs were added, while 120% the unemployment rate held steady at 5.4%. A 80% substantial number of these new positions were in MEDIA N: 37. 2% industries with wages and benefits higher than 40% average. Professional and business services had 0% the largest gains, with 546,000 jobs added. -40% PUBLIC MARKETS AND PUBLIC SOFTWARE -80% COMPANY PERFORMANCE -120%

Major market indexes ended a volatile year by -160% posting their first back-to-back yearly gains since -200% 1999 (Figure 2). After making a stunning Dow and NASDAQ posting increases of 3.6% and comeback in 2003, stock gains moderated, with 8.4%, respectively. Since bottoming out in the S&P 500 finishing the year up 9%, and the October 2002, all three indexes posted stellar Figure 3: SEG-100 Key Statistics returns, with the Dow, NASDAQ, and S&P 500 up SEG - 100 48%, 95%, and 56%, respectively. The market Median value of the SEG-100, our composite index of Measure 1Q04 2Q04 3Q04 4Q04 publicly traded software companies (Appendix A) EV/Revenue 3.0x 2.2x 1.8x 2.2x lagged other market indexes much of the year, EV/EBITDA 22.4x 21.1x 16.6x 19.4x but closed up 6.4% as a result of an improved 4th EV/Earnings 34.3x 29.9x 25.9x 28.5x quarter (Figure 2). Key financial performance Current Ratio 2.1 2.2 2.2 2.2 measures for the SEG-100 are enumerated in Gross Profit Margin 69.8% 68.2% 64.3% 64.4% Figure 3. EBITDA Margin 11.7% 13.5% 14.7% 16.3% Net Income Margin 7.7% 8.8% 9.3% 9.1% Median revenue for the SEG-100 increased a Enterprise Value (EV): A measure of w hat the modest 8.9% in 2004, a by-product of virtually flat market believes a company's ongoing operations IT spending (Figure 4). Profitability grew at a are w orth (Market Cap + Debt - Cash). considerably higher rate, as software companies Cur r ent Rat io: Measured as current assets divided reaped the benefits of cost cutting in prior years. by current liabilities (An indication of a company's The median EBITDA margin of the SEG-100 grew liquidity). from 11.7% in 1Q04 to 16.3% by year-end.

Figure 6: SEG-100 Valuation by TTM Revenue Revenue greater than $1 Revenue betw een $200 Revenue less than $200 million Composite SEG-100 billion million and $1 billion EV/Revenue EV/EBITDAEV/Revenue EV/EBITDA EV/Revenue EV/EBITDA EV/Revenue EV/EBITDA YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 Average 3.9x 4.2x 23.2x 23.0x 2.7x 2.8x 23.5x 20.8x 3.3x 2.8x 27.6x 27.5x 3.3x 3.1x 24.4x 22.9x Median 3.5x 3.8x 21.0x 19.9x 2.1x 2.1x 19.5x 18.9x 1.8x 1.5x 22.7x 29.1x 2.2x 2.2x 20.2x 19.4x

Figure 7: SEG-100 Valuation by TTM Revenue (Profitable Companies Only)

Revenue greater than $1 Revenue betw een $200 Revenue less than $200 million Composite SEG-100 billion million and $1 billion EV/Revenue EV/EBITDAEV/Revenue EV/EBITDA EV/Revenue EV/EBITDA EV/Revenue EV / EBITDA YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 YTD 4Q04 Average 4.0x 4.2x 20.5x 23.0x 2.9x 3.1x 21.9x 20.0x 5.2x 4.4x 26.5x 24.9x 3.9x 3.7x 24.8x 21.9x Median 3.9x 3.8x 18.7x 19.9x 2.2x 2.2x 18.2x 18.5x 3.5x 3.0x 22.6x 21.5x 3.0x 2.7x 19.4x 19.0x Likewise, the median net income margin median market cap (valuation) of the SEG-100 increased from 7.7% to 9.1% over the same decreased 9.6% from 1Q04 to 4Q04. period. Median earnings for the SEG-100 Consequently, three key SEG-100 valuation between 1Q04 and 4Q04 increased 37.2% metrics, Enterprise Value/Revenue, Enterprise (Figure 5). Value/EBITDA, and Enterprise Value/Earnings, declined 27%, 25%, and 25%, respectively, from Despite the earnings improvement, investors 1Q04 to 4Q04. remained concerned about the longer term growth prospects of many software companies. The As for 2005, we expect investors to scrutinize the financial performance of public software Figure 8: SEG-100 Valuation and Financial companies more closely than in 2004, paying Performance by Category special attention to revenue growth. Public SEG - 100 software companies that continue to grow revenue at rates equal to the industry median and 4Q04 TTM TTM TTM continue to improve EBITDA margins may not be Category Median Median Revenue Earnings richly rewarded, but should see modest increases (EV/Rev.) (EV/Rev.) Gr ow th Gr ow th in their valuations. Those that disappoint - even a Softw are Industry 2.2x 2.2x 8.9% 37.2% little - will likely draw immediate retribution from Business Intelligence 2.1x 2.1x 19.6% -23.9% investors. And those that exceed expectations CAD/CAE 1.8x 1.8x 3.8% 57.9% will likely be well-rewarded with share values that Customer Relationship Mgt 1.3x 1.3x -3.0% 52.0% climb faster than the industry median. Investor Developer Tools 3.3x 3.3x 9.6% 56.1% demand for topline growth will undoubtedly cause Document/Content Mgt 1.6x 1.6x 18.1% 44.8% many public companies to become considerably Enterprise Resource Planning 2.3x 2.1x 9.6% 4.2% more acquisitive in 2005, particularly those that Enterprise Sof tw are 5.4x 5.1x 6.6% 15.7% may not be able to attain satisfactory growth Enterprise SystemMgt 2.1x 2.1x 5.2% 128.0% organically. Financial 2.8x 2.8x 7.9% 15.4% HealthCare 2.0x 1.9x 9.6% -14.5% Also favoring acquisitions is the notion that size Internet Tools 3.3x 3.3x 19.1% 35.8% Manufacturing 1.3x 1.3x 1.8% 4.2% matters in the software industry. For the quarter, Middlew are 1.7x 1.7x 5.7% 48.0% SEG-100 companies with revenues greater than Operating System 3.4x 3.4x 10.3% 29.8% $1 billion posted a median EV/Revenue ratio of Security 4.4x 3.3x 12.5% 95.9% 3.8x, compared to a median ratio of 1.9x for Storage Mgt 3.9x 3.9x 23.9% 27.3% software companies with revenue less than $1 Supply Chain Mgt 1.3x 1.3x 4.8% 45.2% billion (Figure 6). Profitability also continues to be TTM revenue & earnings growth compares 1Q04 to 4Q04

Figure 9: SEG-100 Average Cash & Cash premium, were rewarded by an improved Equivilents change over 2004 exchange rate. Those pricing mostly in U.S. 30.0% dollars provided an implicit discount to foreign purchasers, which often spurred sales. According to a December Goldman Sachs report, the 20.0% weaker U.S. dollar was expected to positively impact the revenue of its coverage group of seven public software companies by about 3% in 4Q04 10.0% and about 2%-3% in 2005. Software companies with significant overseas sales in foreign 0.0% currencies will also benefit from the American Jobs Creation Act of 2004, signed into law in October. The law temporarily establishes -10.0% favorable tax treatment for U.S. companies that repatriate retained earnings of their foreign affiliates, taxing them as dividends at a 15% rate, -20.0% rather as income at a 35% corporate rate. Note: the corporate parent may use these repatriated -30.0% funds for acquisitions.

Corporate balance sheets swelled with cash in -40.0% 2004, further boosting the prospects of an M&A 1Q04 2Q04 3Q04 4Q04 boom in 2005. Indeed, cash and cash equivalents of the S&P 500 totaled more than $2.1 trillion at Revenue greater than $1B the end of 3Q04, equaling more than 20% of the Revenue betw een $200M and $1B market value of all companies in the index. Revenue less than $200M Although the trend applies to many public Composite SEG-100 software companies, our analysis of balance sheet cash and cash equivalents of the SEG-100 a key measure of a public software company’s at year-end yielded interesting results. For those market valuation (Figure 7). The median with revenue greater than $1 billion, aggregate EV/Revenue multiple for software companies cash and cash equivalents grew 19.3% from posting a profit in 4Q04 was 2.7x, but only 1.4x for 1Q04 to 4Q04 (Figure 9). However, SEG-100 those reporting losses. companies with revenue less than $200 million saw cash decrease 30.2% over the same time As in past years, public software company period. That doesn’t mean, however, these financial performance in 2004 varied widely by companies can’t access required growth capital. product category. Relative to 1Q04, Storage More than half (53%) of the SEG-100 has no long Management and Business Intelligence providers term debt on their books. Those which have led all other software categories in 4Q04 revenue borrowed have kept debt leverage proportionately growth (+23.9% and +19.6%, respectively), while low, with virtually none carrying more debt than software companies targeting the manufacturing one year’s EBITDA plus cash on hand. Although vertical (1.8%) and Customer Relationship the software industry is significantly Management providers (-3.0%) continued to lag underleveraged, we don’t believe there will be far behind (Figure 8). As for earnings, enterprise significant borrowing – at least not by those able systems management vendors led all other to acquire with stock and raise additional cash categories, reporting an average TTM earnings through increasingly popular PIPEs and increase of 128%, while Business Intelligence secondary offerings. software declined 23.9% in median TTM earnings.

U.S.based software companies with significant international sales benefited from the weakened dollar. Those pricing in euros and yen, often at a

INITIAL PUBLIC OFFERINGS Figure 10: 2004 US IPOs and VC Backed IPOs 600 The IPO market roared back to life in 2004, as 500 pent-up investor demand and burgeoning investor 400 340 cash reserves swept aside concerns about tepid 300 249 GDP growth, surging oil prices, political 215 200 . 93 uncertainty and a slowdown in consumer 83 81 73 spending. 216 companies went public in 2004, 100 41 24 29 raising an aggregate $43 billion - making 2004 the 0 best year for IPOs since 2000 (Figure10). 2000 2001 2002 2003 2004 U.S. IPOs U.S. VC Backed IPOs Venture-backed companies comprised 93 of the Source: Thomson Venture Economics & National new offerings and raised a combined $11 billion, Venture Capital Assocation or 25% of total IPO proceeds. Proving that patience sometimes can be a virtue, 81% of these according to Thomson Venture Economics and newly-listed venture-backed companies received the National Venture Capital Association. By their Series A rounds prior to the bubble burst, year-end, 74% of these new IPOs were trading at

Figure 11: 2004 Software IPOs Offering First Day Year-End Company Cat egor y Of f er Dat e Amount Ret ur n Ret ur n EV / Rev . EV / EBITDA Ent er pr i s e V al ue Human Resource 51job Services and Softw are 9/28/2004 $63,000,000 51.10% 266.67% 25.9x 118.1x $1,353,841,200 Not-For-Profit Vertical Blackbaud 7/21/2004 $100,100,000 6.90% 80.03% 4.3x 19.8x $579,362,080 Sof tw are Blackboard Educational Softw are 6/17/2004 $77,000,000 42.90% 6.53% 2.8x 26.6x $298,947,780 Biometrics Hardw are and Cogent Systems 9/23/2004 $198,000,000 49.80% 176.02% 34.6x 88.8x $2,468,576,380 Sof tw are Google Online Search Engine 8/18/2004 $1,666,400,000 18.00% 127.76% 19.1x 95.9x $51,075,014,640 HyperSpace Netw orking Softw are 10/1/2004 $9,900,000 0.00% -58.95% 17.3x N/A $9,875,280 Communications Billing and Service InPhonic 11/15/2004 $112,000,000 26.30% 44.87% 4.3x 136.8x $857,483,500 Provisioning Software Entertainment and Games JAMDAT Mobile 9/28/2004 $74,300,000 40.70% 23.70% 13.3x 2443.6x $400,743,680 Sof tw are Customer Relationship Mot i v e 6/24/2004 $50,000,000 1.50% 11.54% 2.2x 35.1x $212,784,720 Man age men t

NAVTEQ Corporation Digital Mapping Softw are 8/5/2004 $842,100,000 15.00% 113.72% 11.4x 45.5x $4,052,064,400

Ninetow ns Digital Content & Document 12/2/2004 $168,630,000 3.64% -2.93% 16.0x 24.1x $337,266,420 World Trade Holdings Man age men t Sof t w ar e Business Services and PeopleSupport 9/30/2004 $54,500,000 -7.10% 38.91% 4.0x 22.8x $163,565,800 Sof tw are Clinical Trials Vertical Phase Forw ard 7/14/2004 $39,400,000 24.70% 8.24% 3.0x 109.8x $207,586,120 Sof tw are Right Now Customer Relationship 8/4/2004 $44,100,000 0.00% 130.97% 7.7x 106.3x $421,137,000 Technologies Man age men t Customer Relationship Salesforce.com 6/22/2004 $110,000,000 56.40% 55.49% 11.3x N/A $1,650,442,400 Man age men t Internet Content Services The9 Limited 12/14/2004 $85,000,000 23.50% 33.92% 157.3x 1489.0x $530,082,480 and Softw are MEDIAN: $81,000,000 20.75% 41.89% 11.4x 92.3x $475,609,740 Average: $230,901,875 22.08% 66.03% 20.9x 340.1x $4,038,673,368

or above their offering price, further rewarding Figure12: Software IPO Activity and Year-end investors and stimulating both IPO supply and return 100 75% demand. 71% 66% eredReturn Year-end 73 50% Sixteen software companies went public in 2004, 75 thirteen of them in the second half of the year 25% (Figure 11). When these companies were founded 21% (the median year was 1997), most expected to go 50 0% public within three years. Though it took longer, -25% patience was rewarded here, as well. The newly- -31% -26% listed software companies raised an aggregate 25 16 -50% $3.7 billion, and by year-end closed up an 7 5 8 average 66% over their initial offering prices Number of Software IPOs (Figure 12). Contrast this with 2003, when a 0 -75% paltry eight software IPOs closed up at year-end 2000 2001 2002 2003 2004 by an average 21%. Google may have been the most anticipated IPO of 2004, but 51job, a provider of human resource In 2004, the IPO buzz was all about Google, the services and software based in China, had the most anticipated new offering in years. Pre- biggest gain, soaring 267% beyond its initial Google IPO anticipation, and post-Google IPO offering price. Most IPOs fared well, with nine of success, helped pave the way for other the 16 software IPO companies trading in double- technology IPOs. Priced at $85/share and sold by digit enterprise value to revenue ratios. The 9 auction, the company and its shareholders raised Limited, an online entertainment provider to $1.67 billion in the offering by selling 19.6 million China, boasted a $530 million enterprise value at shares. Turnover was brisk on opening day as 22 year-end despite a mere $3.4 million in revenue. million shares changed hands, pushing the price Only one of the 16 companies to go public in 2004 of a Google share up 18% by close of trading. posted negative EBITDA, signaling the importance of profitability to IPO investors.

Figure 13: 2005 Software IPO Pipeline Offering Annual Company Category Filing Date Amount Revenue Net Inc ome Multimedia, Graphics & ArcSoft 12/21/2004 $46,000,000 $22,100,000 -$500,000 Publishing Software SSA Global Enterprise Resource 6/3/2004 $200,000,000 $637,800,000 $20,000,000 Technologies Planning Softw are Health Care Management Stentor 11/19/2004 $69,000,000 $20,200,000 -$5,400,000 Sof tw are Sybari Softw are Anti-virus sof tw are 5/14/2004 $50,250,000 $38,300,000 -$400,000 Human Res our c es & Taleo Corporation Workf orce Management 3/31/2004 $115,000,000 $43,600,000 -$1,600,000 Sof tw are Transportation services, TransCore Holdings 6/10/2004 $375,000,000 $338,100,000 $500,000 softw are, & hardw are Cus t omer Relat ions hip Unica Corporation Management, Marketing & 11/19/2004 $57,500,000 $48,700,000 $3,500,000 Sales Sof tw are Development Tools, Watchdata Operating Systems & 12/22/2004 $100,000,000 $38,800,000 $3,400,000 Technologies Utilities Software MEDIAN: $84,500,000 $41,200,000 $50,000 Average: $126,593,750 $148,450,000 $2,437,500

Figure 14: Private Equity Dollars Investments The 2005 IPO Express, however, could easily be Percent Change derailed by a host of negative economic and geopolitical factors, but with luck will reach 200 to 600% 250 IPOs and raise an aggregate $50 billion.

500% PRIVATE EQUITY

400% Venture capital and private equity firms remained cautious in 2004, but were a bit more competitive. 300% e Relative to 1997 to e Relative According to the PricewaterhouseCoopers / g Thomson Venture Economics / National Venture 200% Capital Association MoneyTree™ Survey, 2,876 U.S. companies received funding, up a mere 1% 100% from 2003. Aggregate dollars invested, however, increased 11% to $20.9 billion from $18.9 billion

Percent Chan 0% 1997 1998 1999 2000 2001 2002 2003 2004 in 2003. The average investment also improved, rising 9.4% to $7.3 million. Across all industries, Dollars Invested Number of Deals 796 companies received first-time funding totaling Source: PricewaterhouseCoopers/Thomson Venture $4.4 billion, a jump of 23.4% from 2003. Relative Economics/National Venture Capital Association to a 1997 basis year, VC dollars invested are up MoneyTree™ Survey 40.5%, while deal volume is down 10% (Figure 14). 2004 marks the sixth most active year on How will the IPO market fare in 2005? The trend record in dollar terms. line bodes well. More than 120 IPOs are already in the 2005 pipeline (compared with less than 60 Software, once again, continued to lead all other this time last year), including eight software industry sectors in attracting VC investment, with companies. Most notable is SSA Global, a 862 companies funded in 2004 (30% of the total). provider of enterprise software primarily to the Relative to 2003, the number of software industry manufacturing sector (Figure 13). SSA’s growth VC investments remained flat at 862 deals. has been fueled mostly by acquisitions However, in dollar terms, $5.1 billion was invested (aggregating $300 million), many of which were in 2004, compared to $4.2 billion in 2003 and $5.0 distressed assets and companies. Among SSA’s billion in 2002. Software also led all industry 15 acquisitions since early 2002 was Baan, sectors in first-time financings, with 217 acquired in 2003 for $135 million from Invensys – companies (27% of the total) receiving $1.1 which had purchased Baan for $800 million three billion. Notable IT fundings included eHarmony years earlier. SSA today generates $113 million of ($110 million) and security vendors Cipher Trust EBITDA on revenue of $662 million. The ($42 million) and PatchLink ($30 million). company expects to raise $200 million, which it will use to pay down debt and reward preferred By comparison, two other technology sectors, shareholders – with a $150 million cash dividend. Biotechnology and Medical Devices attracted a combined $5.6 billion, or 27% of all venture Another noteworthy software provider in the IPO capital. 68% of that amount went to biotech, with pipeline, Taleo, formerly known as Recruitsoft, is 87 companies receiving first time financing seeking to raise $115 million on revenue of $44 aggregating $679 million. VC investments in million. Aside from acquiring White Amber ($6.7 telecommunications and networking continued to million revenue), Taleo has largely grown decline in 2004, dropping 3% and 8.4% relative to organically, with revenue increasing from $2.2 2003 in dollars invested, and 5.3% and 3.9% in million in 2000 to $44 million in 2004. If M&A deal volume. The semiconductor industry activity within the workforce management sector rebounded nicely, attracting $1.6 billion, an (Page 37) is any indication of investor interest, increase of 22.6% from 2003. The increase in demand for Taleo shares should be strong. 2004 year-over-year semiconductor industry deal volume nearly matched the increase in dollar value, growing 21.7%.

Figure 15: VC Number of Deals by Stage Figure 16: VC Dollars Invested by Stage Relative to 2000 Relative to 2000 0% 0%

-25% -25%

-50% -50%

-75% -75%

-100% -100% 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 Startup/Seed Early Stage Startup/Seed Early Stage Expansion Later Stage Expansion Later Stage Source: PricewaterhouseCoopers/Thomson Venture Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association Economics/National Venture Capital Association MoneyTree™ Survey MoneyTree™ Survey

An analysis of VC/private equity investing in 2004 products, revenue and customers – attracted the by company life cycle stage yields some most attention (1,217 deals) and received the surprising results. 2003 saw a marked increase lion’s share of VC dollars ($9.5 billion). Consistent over 2002 in deal activity (+23.7%) and dollars with 2003, many VCs continued to prefer the invested (+40.3%) in startup/seed stage relative safety of mature enterprises in need of businesses (Figures 15 and 16). In 2004, expansion capital, investing $7.2 billion (34% of professional investors retreated from startups, total) in 647 later stage companies (Figure 17). with the number of companies funded declining 11.4% from 2003 and dollars invested dropping With many funds at or nearing full investment, the by 10.1%. Early stage investments, however, closing months of 2004 found VCs aggressively increased 9.2% to 841 companies funded in 2004, raising new funds. VCs are on track to raise while dollars invested grew 15% to $3.9 billion. approximately $18 billion in 2005, a 71% increase Expansion stage companies – those with over the amount raised from limited partners in 2004. Figure 17: VC Dollars Invested by Stage, 2004 ERGERS AND CQUISITIONS HE UMBERS $346M M A :T N $3,885M U.S. mergers and acquisitions grew in both $7,198M number and value in 2004, according to Mergerstat (Figure 18), outpacing 2003 and setting the tone for 2005. Across all industry sectors, 2004 domestic M&A activity increased 19% to 10,198 transactions, and dollar value, at $820 billion, was up 56%.

Software represented 16% of total M&A activity, $9,511M leading all other industry sectors as in past years. There were 1,630 software transactions in 2004, Startup/Seed Early Stage 23% greater than 2003’s tally (see Figure 26). Expansion Later Stage After a modest start in 1Q04, the number of Source: PricewaterhouseCoopers/Thomson Venture software deals increased 10% in 2Q04, then Economics/National Venture Capital Association leveled off in 3Q04 and 4Q04. In terms of total MoneyTree™ Survey

Figure 18: U.S. Merger & Acquisition Activity 15,000 $1,500 $1,426B 13,500 $1,326B $1,350 $1,283B 12,000 $1,200 11,123 10,198 Value 10,500 (Q4- 2,518) $1,050 9,278 9,514

8,554 ( 9,000 8,281 $900 $Billions 7,848 8,047 7,500 $750 $674B $654B $820B 6,000 (Q4 - $271B) $600 $526B ) Number of Deals 4,500 $452B $450 3,000 $300 1,500 $150 0 $0 1997 1998 1999 2000 2001 2002 2003 2004

Deals Value Source: Mergerstat month (TTM) revenue (Figure 29). For the year, Figure 19: U.S. Software M&A by Dollar the median software company M&A valuation, $30B measured as a multiple of TTM revenue, was $26.5B 2.4x, a sharp increase from 2003’s median $25B valuation of 1.6x TTM revenue (Figure 20).

$20B Unsurprisingly, software M&A valuations continued to vary widely by product category $15B $12.6B (Figure 20). Categories that required enterprise customers to make significant capital investments $10B $8.0B $7.5B that could be postponed, and categories in which enterprise customers invested previously but $5B yielded disappointing returns, lagged well behind categories requiring less investment while $0B providing measurable, near-term benefits. Q1 2004 Q2 2004 Q3 2004 Q4 2004 Source: Mergerstat Valuations were also higher in the more fiercely competitive categories (e.g., security and storage M&A dollars by industry, software placed fifth - management), as key players jockeyed to well behind first place banking & finance - but the compete or differentiate, while others paid healthy $52.1 billion spent on software companies was multiples to expand into a new product category. 18% greater than 2003 (Figure 19). This sharp increase in aggregate purchase price was due to Median M&A valuations by software product higher valuations, a larger number of transactions, category, measured as a multiple of TTM, were as and a greater number of “mega” deals, including follows in 2004: Symantec/Veritas; Juniper/Netscreen; Bain Capital-Silver Lake-Warburg Pincus/UGS PLM; • Accounting/Finance, 4.3x and Sammy/Sega. • Business Intelligence,1.7x • Content/Document management, 2.2x In 4Q04, following an aberrant dip in the prior • Customer relationship management, 1.2x quarter, the median software company M&A • Data management, 2.0x valuation (based on the equity purchase price) • Enterprise resource planning, 3.9x rebounded sharply, to 2.8 times trailing-twelve-

Figure 20: Software M&A Valuation by Category (Median Revenue Multiple)

6.9x 7.0x

6.0x 5.7x

5.0x 4.3x 3.9x 3.8x 4.0x 3.2x 3.0x 2.4x 2.2x 2.0x 2.0x 1.9x 2.0x 1.7x 1.2x 1.3x

Purchase Price / Revenue 1.0x

0.0x . l g A n. M P ty Fi ica BI M M R ss rt R ana D H SM e M& e C ER ES SCM rel W M i S/ lV /C Securi W Acc. & Al D S/W M&A: Total Software M&A DM: Data Management Acc & Financial: Accounting & Financial ERP: Enterprise Resource Planning BI: Business Intelligence ESM: Enterprise System Management CRM: Customer Relationship Management HR: Human Resource & Workforce Management D/C Manag.: Document/Content Management SCM: Supply Chain Management SM: Storage Management

• Security, 5.7x acquisition fails to deliver the intended return. In • Storage management, 6.9x an established, private, enterprise software • Supply chain management, 1.3x company, buyers expect to see annual M&S • Enterprise System Management, 3.8x accounting for about 30% of total revenue. We • Wireless, 3.2x decided to put a random sample of eleven public • Human Resource Management, 1.9x software companies to the same test. Median M&S as a percent of revenue was a surprisingly Increasingly, buyers are scrutinizing seller high 45.5%, while median enterprise value to financial performance and triangulating on fair M&S revenue was 4.2x (Figure 21). market value using metrics in addition to revenue and EBITDA. Some buyers are honing in on M&A deal currency fluctuated over the course of recurring maintenance and support (M&S) the year. As the NASDAQ dipped in 3Q04 and revenue, perhaps as a hedge in the event the 4Q04, payment in all stock, which had steadily

Figure 21: Selected SEG-100 Company Valuation by Multiple of Maintenance and Support Maintenance & M&S as percent Company Total Revenue Enterprise Value EV/(M&S Revenue) EV/(Total Revenue) Support Revenue of total revenue Aspect Communications $214,796,000 $371,100,000 $458,780,200.00 57.9% 2.1x 1.2x Autodesk $157,393,000 $1,173,000,000 $5,997,103,750.00 13.4% 38.1x 5.1x BMC Sof tw are $789,400,000 $1,456,000,000 $3,345,361,000.00 54.2% 4.2x 2.3x Cognos $307,260,000 $771,351,000 $3,121,021,600.00 39.8% 10.2x 4.0x Compuw are $415,490,000 $1,238,500,000 $1,734,355,000.00 33.5% 4.2x 1.4x Filenet $181,561,000 $391,100,000 $813,194,200.00 46.4% 4.5x 2.1x Manugistics $85,227,000 $213,200,000 $265,461,500.00 40.0% 3.1x 1.2x Mapics $108,971,000 $172,799,000 $219,843,000.00 63.1% 2.0x 1.3x Novell $927,498,000 $1,166,000,000 $1,968,536,800.00 79.5% 2.1x 1.7x Oracle $4,808,000,000 $10,556,000,000 $57,087,550,000.00 45.5% 11.9x 5.4x Webmethods $55,565,000 $193,100,000 $221,718,800.00 28.8% 4.0x 1.1x MEDIAN: $214,796,000 $771,351,000 $1,734,355,000 45.5% 4.2x 1.7x

Figure 22: Software M&A – Form of Payment company; to spend cash, dilute equity, allocate 70% precious resources and assume sometimes 61% formidable risks? What were the deal drivers in 60% 56% 51% 2004, how were they different from 2003 and how 50% did they impact valuations and purchase prices? 42% 40% 36% 32% Product Extension 27% 30% 26% 26% 22% A deal-by-deal analysis of the 680 software 20% transactions we analyzed in 2004 reveals 61% of 13% the buyers sought to enhance their current Payment Percentage 10% 9% product suite by acquiring small and mid-cap companies targeting the same markets with highly 0% complementary, best-of-breed, market proven Q1 2004 Q2 2004 Q3 2004 Q4 2004 products and technology (Figure 25). Their Cash Stock Cash & Stock objective was to better satisfy market requirements and thereby differentiate from the increased over the past year with the NASDAQ’s competition and create new sources of revenue. resurgence, declined from 26% to 9% in 3Q04 Examples abound, including Verity’s acquisition of and 13% in 4Q04. By year-end, cash was once again king in software M&A. 52% of software Figure 23: U.S. Public vs. Private Software M&A transactions in 2004 were all cash, 18% all stock Buyers and 29% a combination of cash and stock (Figure 100% 22). 85% 80% 72% Especially noteworthy is the substantial increase 63% 64% 63% in the number of software company private buyers 60% in 2004. Over the course of the year, 34.5% of all acquirers were private. In 4Q04, private buyers 37% 37% 40% 36% accounted for 37% of all software M&A 28% transactions (Figure 23). Venture capitalists, 15% private equity firms, and venture-backed private 20% companies were all extremely active, and in many cases willing to pay public buyer strategic 0% Percentage of Software Buyers of Percentage multiples to acquire private software companies Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 that satisfied their investment criteria. Many Public Pr i v at e sought “platform” software companies, usually with revenue of $10 million to $30 million, a Figure 24: U.S. Public vs. Private Software M&A compounded annual growth rate of 25% or better, Sellers 100% and the capacity to achieve $100 million in five to 92% 94% seven years through rapid organic growth and 86% 87% 95% smaller strategic acquisitions. Others sought 80% private software companies that could add needed product functionality, technology, markets 60% or customers to an existing portfolio company, thereby bettering its exit valuation and prospects. 40%

MERGERS AND ACQUISITIONS:THE DRIVERS 20% 14% 13% 8% In order to discern trends in merger and 6% 5%

acquisition activity, it is essential to understand Software Sellers of Percentage 0% changes in buyer thinking. Precisely what Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 motivated the buyer to acquire this particular Public Pr i v at e

of the quarter’s total. New market buyers Figure 25: Software Mergers & Acquisitions included corporate computer system reseller Deal Drivers Agilysys, which acquired Inter-American Data (IAD), a software provider serving the gaming and Investment 3% casino market. Captiva Software, a provider of input management solutions, acquired ADP Opportunity 3% Context, developer of automated health care claims processing software. Convergys, a Cincinnati Bell spin-off that’s now a $2.3B global Vertical 6% provider of outsourced customer billing and HR Consolidation 9% services, acquired DigitalThink, a provider of e- learning to the Fortune 1000. Cyberguard, a firewall and VPN vendor, acquired Webwasher, a Product 13% German security solutions provider that holds Category 40% of the Web filtering market in Central Europe Consolidation 10% and was named the fastest-growing provider of Web filtering solutions by IDC. In the biggest deal of 2004, security software powerhouse Symantec Mar ket 20% invaded the storage management market with its Expansion 16% proposed Veritas merger, valued at $13.5 billion.

Vertical Markets Product 58% Enhancement Vertical market software company acquisitions 61% comprised about 9% of M&A transactions in 2004. Healthcare software company acquirers were 0% 20% 40% 60% 80% among the few remaining bargain hunters, seeking to capitalize on valuations that remained 2004 4Q04 depressed due to stagnant healthcare IT spending and health industry cost pressures. both Cardiff Software and NativeMinds in 1Q04 to Cerner, an $840 million company that has provide a more comprehensive, single source, traditionally targeted hospital and clinics, gained user friendly solution; Veritas’ purchase of access to some 30,000 physicians by acquiring KVault, a UK developer of best-of-breed e-mail VitalWorks a provider of physician practice content archiving software for an estimated 10 management and medical records software. times trailing earnings after attempts to build its Varian Medical Systems, a provider of software own e-mail storage product failed last year; and for cancer radiation therapy, acquired OpTx, a Kintera’s acquisition of American Fundware, a developer of oncology-specific practice and subsidiary of Intuit that develops accounting patient management software, seeking both software for nonprofit organizations and market leverage and competitive differentiation governments (Appendix B). from main rival GE Medical Systems. Vertical software companies also acquired an array of Market Expansion mobile content delivery and wireless software providers, a trend we expect to grow in 2005. Throughout 2003 we noted a surprising number of Tekelec, provider of telecommunications buyers (20% in 4Q03) that ventured far from products, acquired Steleus Group, a real-time home, acquiring software companies in new performance monitoring company that supplies product categories and new geographic and network-related intelligence to telecom operators. vertical markets in an effort to accelerate growth. 2004 also saw software acquisitions in the The trend moderated during much of 2004, with manufacturing, legal, education and energy buyers seeking new markets comprising about sectors. 16% of all software M&A transactions. In 4Q04, however, new market buys were once again 20%

Product Category Consolidation Figure 26: U.S. Sector-Specific M&A Activity 450 425 424 387 394 Consolidation is a familiar term in the software 400 industry, but its intended meaning varies. For our 350 purposes, it connotes the buyout of a software 300 company by an industry player (usually larger), 250 200 primarily to gain market share and eliminate a 120 150 competitor. Oracle’s bitterly contested acquisition 9393 100 86 of Peoplesoft is a classic example, but it certainly 100 58 47 Deals Announced Deals 51 wasn’t the only software consolidation play in 50 2004. Best Software, a U.S. subsidiary of UK- 0 based Sage Group that provides solutions for Q1 2004 Q2 2004 Q3 2004 Q4 2004 mid-sized and small businesses, acquired Federal Software Life Science Comm. Liaison Services (FLS), a provider of software and Source: Mergerstat services to employers for government reporting and improved corporate balance sheets as and compliance. Serena Software’s bought spelling “the end of the recession-era markets for competing Enterprise Change Management M&A.” (ECM) software provider Merant, creating the second largest provider (23% market share) in the Insightful prognostication or irrational space behind IBM’s Rational Software division exuberance? (30% market share). By most measures, 2004 was a pretty good year Investment Opportunity for mergers and acquisitions. Overall U.S. deal activity rose some 15% and deal spending surged More than one in three software company buyers almost 44%, the best overall performance since in 2004 were private. Most were venture-backed the heady days of 2000. European dealmakers private software companies spending VC cash. fared similarly, with a 6% increase in deal activity Venture capitalists and private equity firms also and a 43.5% gain in aggregate purchase price. acquired directly. First-party private equity deals held steady throughout the year, accounting for In the software sector, 2004 North American M&A 3% of all software M&A transactions. A good deal volume increased 23% over 2003, but example is SciQuest, a provider of procurement remember 2003 got off to a slow start and ramped software for the life sciences and education markets, which was taken private by Menlo Park- Figure 27: CIO Software Spending Priorities based Trinity Ventures. The biggest direct investment deal this year ($2.1 billion) was the Wireless Security spinoff by Electronic Data Systems of its product Storage

h LAN

design management-software unit, UGS PLM g CRM Hi Solutions, in a quest for cash to offset $5 billion in VPN Network EDS debt. The buyers were private buyout firms Management Bain Capital, Silver Lake Partners and Warburg Pincus.Software ERP EAI Web-

um Applications

M&A: A LOOK AT THE YEAR AHEAD di Database e

M Data Backup and Buoyed by the flurry of mega-deals in the closing Restore Software

weeks of 2004, some industry pundits have Priority Spending IT declared the three year M&A drought over. A Application System highly respected dealmaker with a usually Performance Testing conservative outlook enthusiastically declared “an Mgt. ow M&A boom in 2005.” Respected analysts pointed L Server/Desktop to the multi-billion dollar transactions, rich and OS hungry lending markets, sustained GDP growth Source: Goldman Sachs 13| 2004 SIEROFTWARE NDUSTRY QUITY EPORT Copyright 2005 Software Equity Group, L.L.C. Software Equity Group, L.L.C.

Figure 28: U.S. Software Mergers & Acquisitions Compared to NASDAQ Performance 6000 3,000 2,637

5000 2,500 Transactions Software

4000 1,804 2,000 1,630

3000 1,500 1,347 1,325 NASDAQ

2000 1,000

1000 500

0 2000 2001 2002 2003 2004

in 2H03. Quarterly software M&A deal volume has End-of-year technology and software sector been essentially flat for the past seven transactions helped stoke the fire. High profile consecutive quarters (Figure 26). Software M&A December deals included Symantec / Veritas valuations, however, improved quarter-over- ($13.5 billion), Oracle / Peoplesoft ($10.3 billion), quarter for six consecutive quarters, reached 2.9x and Lenovo / IBM PC business ($1.8 billion). in 2Q04, swooned in the summer to 1.7x, and remained anemic through late Fall (Figure 29). What does 2004, and specifically December 2004, portend for the software industry in 2005? December 2004 was the busiest deal month in Are the key M&A indicators positive or negative? history, with more than $283 billion in mergers Will the pace of consolidation quicken? Will mega- and acquisitions worldwide. End-of-year mega- deals proliferate? Will 2005 represent a return to deals proliferated across industry sectors and the M&A boom days? Yes, no, and perhaps. included JP MorganChase / Bank One ($57.6 billion); Sprint / Nextel ($35 billion); and Johnson We’ve long maintained a cause and effect & Johnson / Guidant ($25 billion). Although the relationship between enterprise IT spending and prior eleven months had seen their share of multi- software industry M&A activity and valuations. billion dollar deals, the December flurry fueled When enterprise customers freely spend IT speculation that 2005 would be the year of the dollars in a quest for productivity improvement mega-deal. and competitive advantage, public software

Figure 29: Software Median M&A Multiple Compared to NASDAQ Performance 2500 5.0x 2250 2000 4.0x eeu Multiple Revenue 1750 1500 2.9x 2.8x 3.0x 1250 2.2x 2.1x 2.3x 2.0x 1000 1.9x 2.0x 1.7x 2.0x NASDAQ 1.6x 750 1.1x 1.2x 500 1.0x 250 0 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04

14| 2004 SIEROFTWARE NDUSTRY QUITY EPORT Copyright 2005 Software Equity Group, L.L.C. Software Equity Group, L.L.C. companies are compelled to seek out and acquire Much of the earnings growth in 2004 came from new technologies and products in their own quest cost savings, but there wasn’t much left to for competitive differentiation and incremental squeeze out by year-end. In 2005, an increasing revenue. Some 2005 IT spending surveys are number of public software companies will pursue predicting a tech spending boom, based on the accretive acquisitions in order to achieve the number of companies expecting to increase their earnings growth necessary to satisfy investors IT budgets. The better measure, in our view, is and enhance their valuations. the amount of the IT budget increase, which we believe will be modest. As a result, we’re more Bountiful corporate deal capital. During the comfortable with the more conservative surveys of four year period following the burst of the tech Goldman Sachs which project a moderate 3.9% market bubble, most public companies conserved increase in 2005 tech spending, and an even cash and disposed of non-core assets, adding more modest 3.7% increase in technology capital more cash to the kitty. Many corporate balance budgets. The top CIO spending priorities, sheets are now awash with cash and there is according to the GS survey, are illustrated in growing investor pressure to either use it or Figure 27. We anticipate spending patterns will distribute it to shareholders. According to CFO continue to be erratic, with a 2004-like summer Magazine, the average cash balance of the S&P decline and a fourth quarter budget sweep / 500 is more than double the average cash uptick. If IT spending is, indeed, a key bellwether balance in 1999. of software M&A activity, 2005 does not promise to be the a boom year. As noted above in our Public Markets Section, the strength of public software company balance A number of other key indicators, however, sheets varied considerably by size of company. suggest otherwise: Those with revenues greater than $1 billion improved their cash position by 19.3% by year- Public Software Company Revenue and end; mid-cap SEG-100 companies ($200 million Earnings. In prior reports, we’ve noted a very to $1 billion) saw their year-end cash erode by high correlation between NASDAQ performance 4.9%; while public software companies under on the one hand, and software M&A deal volumes $200 million realized a 30% decline in cash. The (Figure 28) and valuations (Figure 29) on the implications for 2005 M&A? Look for the very other. NASDAQ performance, in turn, is largely large software companies to do large, expensive driven by corporate revenue growth and corporate acquisitions, using cash when necessary as a earnings. component of the purchase price. Expect smaller software companies to focus on smaller, highly From a revenue growth standpoint, public strategic acquisitions using all or mostly stock software companies had a rather lackluster year. whenever possible. The median TTM revenue increase for the SEG- 100 in 2004 was a rather paltry 8.9%. Most, Those software companies not awash in cash however, succeeded in growing earnings at a have other options available, as well. PIPEs are considerably higher rate (Figure 8, above). Given increasingly popular, and secondary offerings to the organic revenue growth constraints raise acquisition capital are once again a viable enumerated earlier in this Report, many more option, thanks to a resuscitated IPO market. The public software companies are expected to debt markets have also made a strong comeback. embrace mergers and acquisitions in 2005 as a With hedge funds moving aggressively into debt viable topline growth strategy. financing, the price of debt has declined and its popularity as deal currency, especially in mega- As for earnings growth, some analysts are deals, is growing. The high yield market, in predicting NASDAQ/tech sector annual income particular, had a major impact on mergers and will surge 40% in 2005. Analysts covering our acquisitions in 2004. Indications are that high- SEG-100 companies are even more optimistic, yield issues will remain strong in 2005, assuming forecasting an average 55% increase in EPS, the fundamentals remain strong: a strengthening according to our company-by-company tally. economy, improved corporate performance, low

15| 2004 SOFTWARE INDUSTRY EQUITY REPORT Copyright 2005 Software Equity Group, L.L.C. Software Equity Group, L.L.C. cost of funds, and strong investor demand that acquisitions will grow to 22% of all software M&A exceeds supply. transactions in 2005.

Unprecedented number of financial buyers Marked Increase in Software IPOs. Sixteen with strategic buyer mindset. Always hungry for software/Internet companies went public in 2004, undervalued assets with good upside, and flush twice as many as in 2003. Most were well with investment capital, the appetite of private received, and despite some predictions to the equity firms was voracious in 2004 after three contrary, these newly listed companies saw an lean years. When public companies sought to average year-end gain in stock price of 66%. Over dispose of non-strategic businesses, equity 120 IPOs are in the current pipeline, including investors responded. As Sarbanes-Oxley and an eight software companies. The pace of IPO unforgiving market made going private much pricings and filings in 2005 should reach a more more appealing for a host of mid and small-cap normalized level of 200 to 250, including some companies, private equity firms, once again, were estimated 30 software companies. What quick to respond. Leveraged buyouts implications do these new public software represented almost 10% of the $664 billion total companies have for software M&A in 2005? A spent in 2004, a fifteen year high. corresponding increase in the number of potential acquirers, flush with IPO proceeds, and hungry for Many private equity firms, under great pressure to deals to spur their growth. put their significant cash reserves to work, targeted the software industry. More than one- And so it appears the “Boom Year” in M&A some third of the buyers of North American software have predicted may come to pass in 2005, barring companies in 2004 were private equity firms and unforeseen circumstances – which no one can venture-backed privately-held companies, a these days. phenomenon we expect to continue. The real surprise, however, was the mindset of these All bets are off in the event of another recession, financial buyers. As more capital became substantial and sustained market correction or available and pressure from investors and limited major attack on our country. But if the stars partners mounted, private equity firms began to remained aligned, we project North American deal shed their conservative, “value” investment volumes will increase 18% in 2005 to 1,925, and criteria and offer strategic buyer prices, a median valuations will grow from 2.4x TTM to 2.8x phenomenon not seen since 2000. By the fourth TTM. Stay tuned. quarter, private equity firms were repeatedly out- bidding strategic corporate buyers, and they show no signs of backing off in 2005.

Growing product category creep and new mega-categories. We’ve paid much attention in our 2004 Quarterly Reports to the changing acquisition motives of buyers. Last year some 16% of software M&A transactions were “market extension” plays, with buyers acquiring their way into new vertical markets, new geography or new software categories. Their motives, predictably, are incremental revenue and profit, and greater customer control. Transactions such as Symantec’s $13.5 billion acquisition of Veritas in December; Yahoo’s $576 million take out of European online comparison shopping site Kelkoo; and EMC’s $260 million acquisition of network management provider SMARTS, are but a few examples. We expect market extension

APPENDIX A: MERGERS AND ACQUISITIONS:MOST ACTIVE BUYERS

2004 saw an increase over 2003 in multi-transaction buyers. Some of the year’s most active buyers:

@Road Automatic Data Processing Cisco Systems x MDSI x Electronic Data Services x Perfigo x Vidus Limited (automotive retail group) x Twingo Systems x CTSoft x Riverhead Networks Accruent, Inc. x Parc Technologies x Tequila Software Avaya x Actona Technologies x National Facilities Group x Spectel x Dynamicsoft x RouteScience x BCN Systems Adobe Systems x P-Cube x Q-Link Technologies Avid Technology x OKYZ S.A. x M-Audio Click Commerce x NXN Software AG x Webridge Infor Global Solutions x bTrade (Formerly Agilisys) Avocent x NxTrend x Sonic Mobility CompuDyne x infor business solutions x OSA Technologies x 90 Degrees AG x Copperfire Software x IncoDev Software- Azure Solutions Solutions Entwicklung GmbH x Connexn Technologies x daly.commerce x Anite Calculus Computer Associates x Varial Software AG x Netegrity Bentley Systems x Miramar Systems Alcatel Compagnie Generale x Haestad Methods x PestPatrol d'Electricite SA x ESSI x Right Vision x Communications Compuware x eDial Information Software x Covisint x AXSYS x Changepoint ASG Corporation x IFS (CAD applications) x DevStream x Dirig Software x Soamaï Broadcom Concerto Software x Istria x Widcomm x CenterForce Technologies x RAIDCore x Rockwell FirstPoint Ask Jeeves Contact (Sub Rockwell) x Interactive Search Cadence Design Systems x Positive Software Systems Holdings x Neolinear Technology x Tukaroo x Q Design Automation Convergys x WhisperWire autobytel.com inc. C-COR.net x i-Benefits x iDriveonline x Alopa Networks x Out-Smart x Stoneage x nCUBE x Finali

Autodesk ChoicePoint Dynetech x Unreal Pictures x Priority Data Systems x GlobalTec x MechSoft x i2 x Kairos

Electronic Arts x Digital Illusions CE AB x Criterion Software Group

Elektrobit Group InfoSpace Mentor Graphics x CIM-TECH OY x Atlas Mobile x Atair GmbH (compiler x 3SOFT x Switchboard tech,engineering res.) x IOMO x 0-In Design Automation EMC x Elkware x Dantz Development Microsoft x SMARTS Input / Output x Lookout x Allocity x Concept Systems x ActiveViews x GX Technology x GIANT Company Software eNucleus x PrimeWire International Business Neon Systems x TakGroup Machines x ClientSoft x Acrux x Alphablox x InnerAccess x Cyanea Esmertec x Venetica NetIQ x eValley x Schlumberger x First Place Software x OOVM x Candle x WebPosition x Systemcorp ALG Evoloving Systems Nstein x Tertio Telecoms Inter-Tel x Alis x Telecom Software x Converging x Kmtechnologies x Linktivity Flextronics Open Solutions x Future Software Jack Henry & Associates x EastPoint x FutureSoft x TWS Systems x Datawest x Hughes Network Systems x Yellow Hammer Software x SER Solutions Open Text Francisco Partners (SERsynergy division) x Vista Plus (from Quest Management x e-ClassicSystems Software) x WRQ x Optinfo x Artesia x Solution 6 Holdings x G International Kintera Openwave x American Fundware x Nombas Fundtech x KindMark x Magic4 x Datasphere x BNW Software x CashTech x GivingCapital Optum x V3 Hewlett-Packard Kronos x WorldChain x Consera Software x 3i Systems x Riverstone Networks (XGS x Matrix Systems Oracle tech platform) x PeopleSoft x Novadigm L-3 Communications x SiteWorks x TruLogica x Sarnoff x D.P. Associates Pitney Bowes IBSG International x Groupe MAG x RedHand LEXIS-NEXIS x Group 1 Software x newGov Solutions x Interface Software x Verilaw Procera Networks Index x Data.TXT x EZ2 x 123 Multimedia x Ezyte x Mobliss

Prophet 21 Sterling Commerce VERITAS x Distributor Information x Yantra x Ejasent Systems x TR2 x Invio Software x Dynamic Data Systems x KVault Sybase PurchaseSoft x Dejima Verity x NetShare x XcelleNet x NativeMinds x Computer Information x Dralasoft Enterprises Symantec x Cardiff x VERITAS QuadraMed x Brightmail VerticalNet x Tempus x TurnTide x Tigris x Détente Systems x B2eMarkets Synopsys Retalix x Cascade Semiconductor Wolters Kluwer x OMI Solutions x PCi x UNIT x Integrated Systems x SIAN Engineering x Summation Legal ScanSoft x Nassda Technologies x Rhetorical Systems x Advanced Recognition TANDBERG Workstream Technologies x N2 Broadband x PeopleView x Phonetic Systems x Ridgeway Systems & x Kadiri x Telelogue Software x HRSoft x Forgent Networks x ProAct Siebel x Bravanta x Eontec TEKELEC x Edocs x VocalData Yahoo! x Steleus Group x Kelkoo SilkRoad Equity x Musicmatch x Pendulab Thomson Financial x WUF Networks x OpenHire x TradeWeb x Stata Labs x CGI Sonic Solutions Zaq x Roxio (consumer software TIBCO x Silver Leap division) x General Interface x Logo Computer System x InterActual x Staffware

SS&C TradeBeam x OMR x Open Harbor x Investment Advisory x SupplySolution Network x NeoVision Hypersystems Verint x RP Sicherheitssysteme SSA Global x Ectel x Arzoon x Marcam (From Invensys VeriSign plc) x Unimobile (Unit of Electronics for Imaging) x EuroTrust PKI A/S (Div. Of EuroTrust AS)

APPENDIX B: MERGERS AND ACQUISITIONS:SOFTWARE INDUSTRY CATEGORIES

A new feature of our Annual Report is a quantitative and qualitative analysis of 65 of the year’s most interesting software industry mergers and acquisitions by software product category.

ACCOUNTING &FINANCIAL SOFTWARE

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Fair Isaac $299,300,000 $211,540,000 $191,030,000 $2,353,049,600 3.3x 11.8x (NYSE: FIC) Intuit $759,650,000 $574,580,000 $522,320,000 $7,484,458,550 4.0x 14.1x (NASDAQ: INTU) Jack Henry $120,840,000 $115,760,000 $71,810,000 $1,635,893,200 3.4x 11.9x (NASDAQ: JKHY) Lawson Software $177,110,000 $(1,280,000) $(5,740,000) $419,532,500 1.2x 54.1x (NASDAQ: LWSN) MRO Software $59,210,000 $20,970,000 $16,780,000 $259,160,100 1.4x 16.9x (NASDAQ: MROI) Sungard Data Systems $487,340,000 $671,320,000 $491,540,000 $7,719,453,250 2.2x 7.5x (NYSE: SDS) Median: $238,205,000 $163,650,000 $131,420,000 $1,994,471,400 2.8x 13.0x

REPRESENTATIVE CATEGORY TRANSACTIONS

Best Software acquires Federal Liaison Category: Financial Services Services Purchase Price: $259,249,268EV Category: Accounting/Financial Seller Revenue: $69,019,808 Purchase Price $18,010,960 Revenue Multiple: 3.8x Seller Revenue $8,834,119 Payment Terms: Cash Revenue Multiple 2.0x Payment Terms: Cash, Stock SEG’s Perspective: SEG’s Perspective: Fair Isaac, developer of credit scoring systems Best Software, a U.S. subsidiary of UK-based and statistics-based predictive tools for the Sage Group that provides solutions for mid-sized consumer credit industry, acquires London Bridge and small businesses, acquires Federal Liaison Software, a UK based provider of banking, credit Services (FLS), a provider of software and management, and mortgage lending management services to employers for government reporting software. Fair Isaac paid a 54% premium for a and compliance. FLS introduced the payroll company which saw revenue decrease 6.3% in its industry’s first web-based, hosted employer last fiscal year, although cost cutting measures compliance solution, and Best had been a reseller helped improve EBITDA from a $94 million loss in of FLS products. FLS will complement Best’s 2002 to almost a $1 million gain in 2003. With outsourced payroll services by enabling it to license revenue declining year-over-year since provide a complete tax service solution and 2002, maintenance and e-commerce services compete more effectively with ADP and Ceridian. have comprised a growing percentage of London Bridge’s revenue. For investors, the purchase Fair, Isaac and Company (NYSE: FIC) acquires price is quite a let down from London Bridge’s London Bridge (LSE: LNB) peak valuation in March 2000 of $3.8 billion. London Bridge shares increased 52% on news of the deal.

Open Solutions (NASDAQ: OPEN) acquires Total System Services (NYSE: TSS) acquires Datawest Solutions (TSX: DS) Clarity Payment Solutions Category: Banking, Financial Services Software Category: Transaction Processing Purchase Price: $38,000,000 Purchase Price: $53,000,000 Seller Revenue: $34,300,000 Seller Revenue: $9,800,000 estimate Revenue Multiple: 1.1x Revenue Multiple: 5.4x Payment Terms: Cash Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Open Solutions, primarily a provider of software Total Systems Services (TSYS), a $1 billion systems for small banks and credit unions, global electronic payment processing company, acquires Datawest Solutions, a provider of acquires Clarity Payment Solutions, provider of outsourced internet and telephone banking reporting, marketing, communications, systems, CRM applications and web-based loan compliance and risk management tools designed origination software to Canadian credit unions. for the prepaid market. Clarity, now one of 9 Open Solutions, a small public company which TSYS subsidiaries, will allow TSYS to expand out competes against billion dollar giants like Fiserv of its mature current market (consumer, debit, and Jack Henry, acquired Datawest to extend its commercial, and retail cards) into emerging presence in Canada. Seeking to rapidly grow its prepaid markets like healthcare, payroll, installed base and add an array of products insurance claims, branded gift and the like. Look capable of quickly generating incremental for more acquisitions from TSYS as it tries to revenue, Open has spent $76.1 million on 5 branch out into emerging foreign markets acquisitions since its November 2003 IPO. (domestic sales accounted for 92% of total revenue) and grow rapidly in a consolidating industry. In April, TSYS’ largest competitor, First Data, acquired Concord EFS for $7 billion.

THUMBNAIL OF ACCOUNTING &FINANCIAL SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Best Federal $18,011,000 $8,834,000 2.0x Reporting and compliance Software Liaison solutions for payroll tax Services payments and filings, wage garnishments DMG Lewtan $34,000,000 $5,500,000 6.2x Information and technology Information Technologies (estimate) solutions to the global asset securitization industry Fair, Isaac London $299,000,000 $69,020,000 4.3x Enterprise management, Corp. Bridge banking, credit management (NYSE:FIC) Software and enterprise-wide mortgage (LSE:LNB) lending software Manatron VisiCraft $1,500,000 $500,000 3.0x Property tax collection (NASDAQ: MANA) Systems (estimate) solutions Morgan Barra $816,400,000 $150,170,000 5.4x Risk management Stanley (NASDAQ: BARZ) (NYSE: MWD) Open Datawest $38,000,000 $34,300,000 1.1x Banking and electronic Solutions Solutions payment software for credit (NASDAQ: OPEN) (TSX: DS) unions, ATM networks, and financial services companies S1 Corp. Mosaic $37,000,000 $8,700,000 4.3x Financial processing solutions (NASDAQ:SONE) Software

THUMBNAIL OF ACCOUNTING &FINANCIAL SOFTWARE M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Selectica I-many $70,000,000 $39,680,000 1.8x Commitment and contract (NASDAQ: SLTC) (NASDAQ: IMNY) management solutions Total System Clarity $53,000,000 $9,800,000 5.4x Compliance and risk Services Payment (estimate) management systems (NYSE: TSS) Solutions *Equity Value

BUSINESS INTELLIGENCE /BUSINESS PROCESS MANAGEMENT

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Actuate $48,030,000 $8,380,000 $5,110,000 $106,353,150 1.0x 56.0x (NASDAQ: ACTU) Business Objects $222,620,000 $71,270,000 $42,220,000 $2,660,117,500 3.2x 59.3x (NASDAQ: BOBJ) Cognos $439,370,000 $172,180,000 $151,440,000 $2,370,724,900 3.1x 15.6x (NASDAQ: COGN) Hyperion Solutions $362,550,000 $102,050,000 $78,500,000 $1,013,212,150 1.5x 9.3x (NASDAQ: HYSL) Informatica $234,180,000 $8,180,000 $5,310,000 $610,310,350 2.8x - (NASDAQ: INFA) Median: $234,180,000 $71,270,000 $42,220,000 $1,013,212,150 2.8x 35.8x

REPRESENTATIVE CATEGORY TRANSACTIONS

Cognos (NASDAQ: COGN) acquires Frango management software, acquires Lasata, an (Stockholm: FRAN B) Australian developer of data analytic and Category: Enterprise Performance Management business intelligence software capable of handling Purchase Price: $52,200,000 multiple formats and disparate applications. Seller Revenue: $34,300,000 Lasata, which has OEM’d its software to SUG for Revenue Multiple: 1.5x several years, will be integrated into the business Payment Terms: Cash intelligence division, formed in 2003 following SUG’s acquisition of MIS (based in Germany). SEG’s Perspective: SUG’s Business Intelligence division contributes Business intelligence powerhouse Cognos some 32% of its revenue. Lasata’s 75,000 users acquires Swedish business performance in 158 countries may provide much needed cross- management (BPM) provider Frango, which sell opportunities for SUG, which saw new license specializes in consolidation and financial reporting revenue decline for the past 2 years to 29% of products. With 60% of its sales coming from total. North America, Cognos sees Frango as an opportunity to quickly expand its European TIBCO Software (NYSE: TIBX) acquires presence and compete with arch rival Business Staffware (London: STW) Objects on its home court. The purchase price Category: Business Process Management represents a 63% premium over Frango’s closing 1 Purchase Price: $217,000,000 price on the Stockholm Exchange. In December Seller Revenue: $75,000,000 2002 Cognos acquired Adaytum ($160 million), Revenue Multiple: 2.9x which is another BPM tool for budgeting and Payment Terms: Cash, Stock planning. SEG’s Perspective: Systems Union Group (London AIM: SUG) Tibco Software, provider of business integration acquires Lasata software, acquires Staffware, a UK-based Category: Business Intelligence provider of business process management Purchase Price: $18,500,000 software used by banks for loan approvals and Seller Revenue: $10,800,000 mortgage applications. The purchase price Revenue Multiple: 1.7x represents a 40% premium over Staffware’s Payment Terms: Cash, Stock closing price preceding announcement of the deal, prompting investors to drive Staffware’s SEG’s Perspective: share price up 36% the next day. Tibco, which Systems Union Group (SUG), a UK based saw revenue decrease 3.4% last year, was provider of BI, financial and business attracted by Staffware’s growth and 20% EBITDA.

Equally attractive was Staffware’s strength in banking and insurance, and established presence in Europe and Asia Pacific.

THUMBNAIL OF BUSINESS INTELLIGENCE SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Cognos Frango $52,200,000 $34,300,000 1.5x Software solutions enabling (NASDAQ: COGN) (Stockholm:FRANB) finance and business managers to plan, report, consolidate, monitor and analyze business information TIBCO Staffware $217,000,000 $75,000,000 2.9x Business process and Software (London: STW) workflow management (NASDAQ: TIBX) software Systems Lasata $18,500,000 $10,800,000 1.7x Reporting, business Union Group intelligence, and analytic (LSE: SUG) software *Equity Value

CONTENT/DOCUMENT MANAGEMENT

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Adobe 1,310,000,000 $ 621,520,000 $ 567,580,000 $12,652,241,300 7.6x 21.4x (NASDAQ: ADBE) FileNet 291,970,000 $ 63,050,000 $ 52,760,000 $813,194,200 2.1x 22.5x (NASDAQ: FILE) Hummingbird 130,490,000 - - $272,293,500 1.2x 7.2x (NASDAQ: HUMC) Interwoven 138,690,000 $ (7,270,000) $ (9,620,000) $259,942,400 1.7x - (NASDAQ: IWOV) Median: $134,590,000 ($4,420,000) ($6,600,000) $266,117,950 1.7x 17.9x

REPRESENTATIVE CATEGORY TRANSACTIONS

Verity (NASDAQ: VRTY) acquires Cardiff Veritas (NYSE: VRTS) acquires KVault Software Software Category: Document/Forms Management Category: E-mail Content Management Purchase Price: $50,000,000 Purchase Price: $225,000,000 Seller Revenue: $26,300,000 Seller Revenue: $23,000,000 Revenue Multiple: 1.9x Revenue Multiple: 9.8x Payment Terms: Cash Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Verity, a provider of enterprise search, Veritas acquires KVault Software, an England classification and personalization software, based developer of e-mail content archiving. The acquires Cardiff Software, a developer of e-mail archiving market has seen 57% CAGR document-capture and e-forms processing over the next 5 years1, in large part due to software. The deal, which takes the last Sarbanes-Oxley. Veritas paid an estimated 10 independent e-forms software developer off the times trailing earnings to acquire a best-of-breed market for $50 million all cash, extends Verity into offering after an attempt to build its own e-mail a new area of information management. Verity will storage product failed last year. An estimated now be able to capture data from documents and 23% of KVault’s 2003 revenue came from Veritas forms and move the unstructured information competitor EMC, which now offers a through business processes, which then can be complementary archiving product through recently searched and analyzed by Verity’s suite of tools. acquired Legato. Veritas hoped the acquisition With Cardiff competitors (Accellio, Shana, and would generate excitement after missing 2Q04 Caere) in the e-forms space all being acquired by financial projections and a 30% reduction in its larger companies, and with Microsoft and Adobe market cap, but Veritas’ share price fell 4% on systems elbowing their way into the space, the news of the deal because of concerns it overpaid. time was right for Cardiff to exit.

THUMBNAIL OF CONTENT/DOCUMENT MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Datawatch Mergence $2,500,000 $1,061,000 2.4x Content management solutions Corp. Technologies (NASDAQ: DWCH) Corp. Nstein KM- $1,785,000 $1,300,000 1.4x Collaboration, document Technologies technologies management, knowledge management and customer- relations management solutions Open Text Vista Plus $24,000,000 $17,649,400 1.4x Output management solution Corp. Suite from delivering all business output (NASDAQ: OTEX) Quest to any user via multiple Software delivery channels. (NASDAQ: QSFT) Stellent Optika $59,000,000 $19,224,000 3.1x Imaging, workflow, (NASDAQ: STEL) (NASDAQ:OPTK) collaboration and records management solutions Veritas KVault $225,000,000 $23,000,000 9.8x E-mail content archiving (NASDAQ: VRTS) Software solutions Verity Cardiff $50,000,000 $26,300,000 1.9x Document-capture and forms- (NASDAQ: VRTY) Software processing tools *Equity Value

CUSTOMER RELATIONSHIP MANAGEMENT

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Art Technology Group $24,970,000 $(15,780,000) $(16,260,000) $81,593,600 1.3x - (NASDAQ: ARTG) Aspect Communications $183,280,000 $94,110,000 $77,580,000 $458,780,200 1.3x 4.9x (NASDAQ: ASPT) Chordiant Software $60,340,000 $(894,000) $(1,900,000) $105,096,800 1.3x - (NASDAQ: CHRD) E.piphany $147,270,000 $(9,590,000) $(11,660,000) $193,305,900 2.3x - (NASDAQ: EPNY) Lightbridge $49,520,000 $11,640,000 $314,000 $84,040,000 0.6x 15.8x (NASDAQ: LTBG) Onyx Software $9,900,000 $(1,340,000) $(2,660,000) $40,728,500 0.7x - (NASDAQ: ONXS) Siebel Systems $2,150,000,000 $229,930,000 $221,200,000 $2,769,085,600 2.1x 11.0x (NASDAQ: SEBL) Median: $60,340,000 ($894,000) ($1,900,000) $105,096,800 1.3x 11.0x

REPRESENTATIVE CATEGORY TRANSACTIONS

Art Technology Group (NASDAQ: ARTG) Pitney Bowes (NYSE: PBI) acquires Group 1 acquires Primus (NASDAQ: PKSI) Software (NASDAQ: GSOF) Category: Customer Relationship Management, Category: Customer Relationship Management EV Marketing & Sales Purchase Price: $263,410,000 Purchase Price: $20,060,000EV Seller Revenue: $109,970,000 Seller Revenue: $25,700,000 Revenue Multiple: 2.4x Revenue Multiple: 0.8x Payment Terms: Cash Payment Terms: Stock SEG’s Perspective: SEG’s Perspective: Pitney Bowes, a vendor of mailroom equipment Art Technology Group (ATG), provider of and mailing solutions, grows its document and ecommerce software, acquires Primus Knowledge customer relationship management business by Solutions, a developer of customer relationship acquiring Group 1 Software, a developer of direct management, marketing and knowledge mail, direct marketing and customer management software for managing customer communications software. The purchase price, a queries, emails, and chat sessions. ATG saw 40% premium over Group 1’s closing stock price ample cross-sell opportunities into Primus’ before the deal was announced, is the largest of installed base and was also attracted by Primus’ Pitney Bowes 35 acquisitions (totaling $1.3 billion) 29% year-over-year revenue growth. The street since 2001. As a result, Standard & Poor’s Rating didn’t seem to recognize the synergies, as news Services has placed Pitney Bowes on “Credit of the deal had virtually no impact on Primus’ watch with negative implications”, citing concerns share price and pushed ATG’s down 12.2%. Both about the company’s leverage profile, in large part companies have suffered similar fates since going due to its acquisition strategy. Group 1 has been public in July 1999. At one time, each enjoyed a struggling, with revenue decreasing 4.2% and share price north of $120, but were trading below earnings decreasing 50.3% in its last fiscal year. $1 on deal day. Investors responded favorably to the deal, driving Group 1’s closing share price up 38% from its previous close.

Verity (NASDAQ: VRTY) acquires NativeMinds reportedly sank some $40 million into the 5 year Category: Customer Support old San Francisco based company. The plan is to Purchase Price: $3,800,000 link Verity’s search capabilities with NativeMinds’ Seller Revenue: $6,250,000 (estimate) web-based customer assistance suite, as well as Revenue Multiple: 0.6x the online forms technology of another recent Payment Terms: Cash Verity acquisition, Cardiff Software. Verity is representative of a growing number of buyers SEG’s Perspective: seeking to acquire and aggregate technologies to Verity, a provider of search, classification and spur growth and differentiate their offerings. For personalization software, acquires NativeMinds, the six months ended 11/03, Verity revenues rose developer of natural language, on-line customer 24% to $55.5 million and net income rose 40% to support solutions. The $3.8 million, all cash deal $5.5 million. is likely to come as a disappointment to NativeMinds’ investors, including Oracle, TA Associates, Convergsys, and CIBC, which

THUMBNAIL OF CUSTOMER RELATIONSHIP MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Art Primus $31,500,000 $25,700,000 1.2x Knowledge management Technology Knowledge software that enables Group Solutions businesses to collect and (NASDAQ: ATRG) (NASDAQ: PKSI) distribute customer information internally, and access and manage customer support and service functions Autobytel iDriveonline $11,700,000 $3,500,000 3.3x Online prospecting and (NASDAQ: ABTLE) retention tool, enhanced data and segmentation tools, and improved auto dealer reporting capabilities CIBER Ascent $40,000,000 $41,000,000 1.0x Leading UK partner for both (NYSE: CBR) Technology SAP and Sage ERP solutions Ltd. and the author of the Ascent customer relationship management software Pitney Bowes Group 1 $321,000,000 $109,970,000 2.9x Software solutions for data (NYSE: PBI) Software, quality, customer (NASDAQ: GSOF) communications management and direct marketing applications Tucows Boardtown $4,000,000 $1,250,000 3.2x Billing and customer care (OTC: TCOW) Corp. software solutions to Internet Service Providers (ISPs) and Application Service Providers (ASPs) worldwide Verity NativeMinds $3,800,000 $6,250,000 0.6x Software tools that help (NASDAQ: VRTY) (estimate) companies build virtual representatives for automated customer service, sales, and support Viewpoint Unicast $7,375,000 $11,200,000 0.7x Online advertising solutions Corp. Comm. Corp. (estimate) provider (NASDAQ: VWPT) *Equity Value

DEVELOPER TOOLS

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) BEA Systems $1,590,000,000 $263,340,000 $249,570,000 $2,531,190,000 2.4x 10.8x (NASDAQ: BEAS) Borland $210,260,000 $17,380,000 $14,230,000 $704,410,900 2.3x 24.5x (NASDAQ: BORL) Macromedia $285,700,000 $57,140,000 $5,760,000 $1,677,450,000 4.1x 25.3x (NASDAQ: MACR) Mercury Interactive $476,000,000 $213,290,000 $183,320,000 $4,048,882,600 6.4x 47.7x (NASDAQ: MERQ) Progress Software $185,390,000 $66,590,000 $57,960,000 $619,279,000 1.8x 12.4x (NASDAQ: PRGS) Serena Software $159,110,000 $45,240,000 $43,570,000 $854,152,700 5.0x 28.7x (NASDAQ: SRNA) Wind River Systems $76,570,000 $21,900,000 $18,270,000 $1,162,747,800 5.1x - (NASDAQ: WIND) Median: $210,260,000 $57,140,000 $43,570,000 $1,162,747,800 4.1 24.9x

REPRESENTATIVE CATEGORY TRANSACTIONS

Macrovision (NASDAQ: MVSN) acquires software developers and countless enterprise InstallShield Software system administrators. For InstallShield, the time Category: Developer Tools was right, with revenue declining from an Purchase Price: $76,000,000 estimated $50 million in 2000 to $35 million in Seller Revenue: $35,000,000 2003. In addition to the $76 million all cash Revenue Multiple: 2.2x purchase price, the transaction includes a Payment Terms: Cash potential $20 million earnout. InstallShield’s main competitor, Wise Solutions (which InstallShield SEG’s Perspective: sued for stealing proprietary information), was Macrovision, a provider of electronic licensing, acquired in December 2003 by Altiris for 2.3x. copy protection and digital rights management solutions, acquires InstallShield, the leading developer of software installation tools. With InstallShield, Macrovision gains access to 69,000

THUMBNAIL OF DEVELOPER TOOLS SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Macrovision Installation $76,000,000 $35,000,000 2.2x Tools to create programs for Corp. Software helping users install software (NASDAQ: MVSN) Technologies on computers Universal Simple- $12,500,000 $2,500,000 5.0x Software development kits, Electronics Devices (estimate) intended to make media and (NASDAQ: UEIC) content management easier for a variety of platforms, including home electronics, automotive electronics, and mobile devices *Equity Value

DATA MANAGEMENT

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Ascential Software $471,500,000 $(27,850,000) $(32,500,000) $366,840,000 1.4x 18.1x (NASDAQ: ASCL) Informatica $234,180,000 $8,180,000 $5,310,000 $442,810,000 2.0x - (NASDAQ: INFA) Hummingbird 130,490,000 - - $272,293,500 1.2x 7.2x (NASDAQ: HUMC) Median: $234,180,000 ($9,835,000) ($13,595,000) $366,840,000 1.4x 12.7x

REPRESENTATIVE CATEGORY TRANSACTIONS

Intellisync (NASDAQ: SYNC) acquires Search Progress Software (NASDAQ: PRGS) acquires Software America Persistence Software (TSX: PRSW) Category: Data Management Category: Enterprise Application Integration Purchase Price: $20,000,000 Software Seller Revenue: $10,000,000 Purchase Price $11,025,000EV Revenue Multiple: 2.0x Seller Revenue $8,280,000 Payment Terms: Cash Revenue Multiple 1.3x SEG’s Perspective: Payment Terms: Cash Intellisync Corporation, a leading provider of SEG’s Perspective: synchronization and mobilization software, Consolidation continues in the middleware acquires Search Software America (SSA) whose category, as Progress Software, a provider of products synchronize personal identity data within technology to develop and manage business computer systems and network databases. SSA’s applications, acquires Persistence, a developer of ability to match, group, and manage differently distributed data access and caching software. spelled names and addresses will leverage Progress will integrate Persistence’s real time Intellisync in SSA’s key markets, including data services technology into its ObjectStore data financial services and state/local government. management product line. The timing was right SSA’s $3.5 million EBITDA and $10 million in for both parties. Persistence has struggled for revenue during calender year 2003 will be a some time, relying on layoffs to offset declines in welcome addition to Intellisync’s negative $8.5 revenue and break-even profitability. The million EBITDA and $32 million TTM revenue. purchase price represents a 52% premium over Over the last twelve months, Intellisync has Persistence’s stock price prior to announcement. acquired five companies with the intention of This deal is the latest in a string of competition shifting the company’s focus from cabled PDAs to motivated transactions. Following Progress’ 2002 wireless handhelds, smartphones, laptops, and acquisition of eXcelon, direct competitor Versant tablets. acquired eXcelon competitor Poet Software for 3.5x TTM.

THUMBNAIL OF Data Management SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Corpora plc Exago $9,123,500 $820,790 11.1x Scaleable knowledge (LSE: CP) discovery product that finds, filters and delivers information matching individual user profiles Intellisync Search $20,000,000 $10,000,000 2.0x Software products that Corp. Software significantly enhance an (NASDAQ: SYNC) America organization's ability to search, find, match and group identity data within their computer systems and network databases Interwoven Software $2,000,000 $2,000,000 1.0x Records management (RM) (NASDAQ: IWOV) Intelligence (estimate) solutions Progress Persistence $16,000,000 $8,280,000 1.9x Data management software Software Software (estimate) that processes the exchange, (NASDAQ: PRGS) (TSX: PRSW) integration, and synchronization of data and Web content for businesses with high-traffic Web sites, intranets, and extranets *Equity Value

ENTERPRISE RESOURCE PLANNING

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Aspen Technolgy $107,680,000 $40,420,000 $37,300,000 $207,909,100 0.6x - (NASDAQ: AZPN) Epicor Software $46,630,000 $22,580,000 $18,570,000 $742,577,400 3.7x 26.3x (NASDAQ: EPIC) MAPICS $26,410,000 $20,920,000 $19,640,000 $219,843,000 1.3x 6.7x (NASDAQ: MAPX) PeopleSoft $1.63B $366,610,000 $204,750,000 $7,025,401,250 2.6x 20.9x (NASDAQ: PSFT) QAD $57,500,000 $22,780,000 $4,260,000 $254,629,200 1.1x 12.3x (NASDAQ: QADI) SAP $3.68B - - $51,213,750,000 5.4x 19.0x (NYSE: SAP) Chinadotcom $202,820,000 - - $361,960,400 2.3x 66.7x (NASDAQ: CHINA) Median: $107,680,000 $22,780,000 $19,640,000 $361,960,400 2.3x 20.0x

THUMBNAIL OF ENTERPRISE RESOURCE PLANNING M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Oracle Corp. PeopleSoft, $10.3 billion $2,670,000,000 3.9x Designs, develops, markets (NASDAQ: ORCL) (NASDAQ: PSFT) and supports enterprise application software products for use throughout large and medium-sized organizations worldwide *Equity Value

ENTERPRISE SYSTEM MANAGEMENT

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Computer Associates $2,250,000,000 $1,350,000,000 $1,320,000,000 $17,540,138,600 5.2x 26.7x (NYSE: CA) Compuware $540,210,000 $200,190,000 $152,110,000 $1,734,355,000 1.4x 14.9x (NASDAQ: CPWR) Micromuse $115,250,000 $(159,000) $(3,860,000) $273,407,200 1.9x - (NASDAQ: MUSE) Novell $1,210,000,000 $120,590,000 $92,200,000 $1,968,536,800 1.7x 16.5x (NASDAQ: NOVL) BMC Software $645,300,000 $440,700,000 $378,800,000 $3,345,361,000 2.3x 73.5x (NYSE: BMC) Median: $927,650,000 $280,645,000 $235,500,000 $2,656,948,900 2.1x 26.7x

REPRESENTATIVE CATEGORY TRANSACTIONS

BMC Software (NYSE: BMC) acquires Marimba Compuware (NASDAQ: CPWR) acquires (NASDAQ: MRBA) Changepoint Category: Systems Management Category: Systems Management EV Purchase Price: $185,900,000 Purchase Price: $100,000,000 Seller Revenue: $40,880,000 Seller Revenue: $20,000,000 Revenue Multiple: 4.6x Revenue Multiple: 5.0x Payment Terms: Cash Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: BMC Software enhances its Business Service Compuware, provider of systems software Management (BSM) solutions by acquiring products for application development and Marimba, a developer of change and maintenance, acquires Changepoint, a developer configuration management software. The deal, in of IT governance software to quantify and which BMC paid a hefty 70% premium, is BMC’s measure the business value of IT investments. third in four months. Marimba, together with The deal comes at a good time for both parties. Magic Solutions, will be integrated into the Compuware’s revenue declined 20.4% in 2003, Remedy product line (acquired from Peregrine in with new license revenue accounting for less than 20% of total sales, while Changepoint’s revenue a bankruptcy sale). BMC wants to enhance its was flat in 2003. Proving patience can be a BSM offering in response to a growing customer virtue, the $100 million all cash purchase price demand for IT management solutions that are dwarfs the $45 million Changepoint hoped to raise aligned with enterprise business goals (the same when it filed for an IPO in March 2000, but quickly as Mercury Interactive’s Business Technology rescinded in April 2000. This is Compuware’s Optimization strategy noted above). Two of second acquisition in 2004, and likely not its last Marimba’s rivals, ON Technology and Novadigm, with $367 million in cash on its balance sheet and were bought by Symantec and Hewlett-Packard a need for other sources of revenue in a respectively, while IBM bought BMC competitor competitive market. Candle Corp. While Marimba stock has lost 80% of its value since 2000, news of the deal sent Marimba up more than 60%, its highest price in almost 4 years.

Hewlett Packard (NYSE: HPQ) acquires Serena Software (NASDAQ: SRNA) acquires Novadigm Merant Plc (NASDAQ: MRNT) Category: Enterprise System Management Category: Change Management EV Purchase Price: $94,834,000 Purchase Price: $309,300,000EV Seller Revenue: $52,100,000 Seller Revenue: $128,300,000 Revenue Multiple: 1.8x Revenue Multiple: 2.41x Payment Terms: Cash Payment Terms: Cash, Stock SEG’s Perspective: SEG’s Perspective: Hewlett-Packard Co. continues to aggressively Serena Software’s acquisition of competing expand its OpenView software suite by acquiring Enterprise Change Management (ECM) software Novadigm, a leading provider of automated IT provider Merant creates the second largest configuration and change management software. provider (23% market share) in this space behind Simultaneously, HP picked up Consera Software, IBM’s Rational Software division (30% market a provider of software that enables IT resources share). The combined company will have to be mapped to business services. Last fall, HP estimated annual revenue of $225 million, 15,000 acquired Talking Blocks for services customers, and 46 of the 50 largest multinational management, Baltimore Technologies’ Select companies. Serena, sells ECM software mostly Access business for identity management, and for mainframes, has a market cap of about $803 Persist Technologies for information lifecycle million, while Merant, whose software is deployed management. Novadigm saw its revenue on distributed systems, has a market cap of about decrease 11% the last fiscal year. HP agreed to $300 million. Serena’s 2003 revenues were 27% pay $6.10 in cash for each share of Novadigm lower then Merant’s, but Serena achieved much stock. The day after this deal was announced, higher revenue and profitability per employee Novadigm’s stock shot up 27% shortly after the leading to the higher market valuation and an opening bell. opportunity to improve Merant’s performance. For Merant shareholders, the deal equates to a 25% Mercury Interactive (NASDAQ: MERQ) premium above Merant’s closing price on the day acquires Appilog of the announcement, not bad considering Merant Category: Systems Management has racked up losses aggregating $140 million on Purchase Price: $49,000,000 revenue of $483 million over the last three fiscal Seller Revenue: $4,000,000 (estimate) years and saw its revenue fall 32%. Revenue Multiple: 12.3x Payment Terms: Cash TEKELEC (NASDAQ: TKLC) acquires Steleus SEG’s Perspective: Group With its fourth acquisition in twelve months, Category: Network Performance Management Mercury Interactive continues to move beyond Purchase Price: $56,000,000 applications and testing into business technology Seller Revenue: $25,000,000 (estimate) optimization (BTO) by acquiring Appilog, a Revenue Multiple: 2.2x provider of automated application matching Payment Terms: Stock, Cash software to manage dependencies between SEG’s Perspective: enterprise applications and supporting Tekelec, provider of telecommunications products infrastructure. Appilog, together with Kintana for next-generation fixed, mobile, and packet (acquired by Mercury in 2003 for $267.5 million) networks, acquires Steleus Group, a real-time will establish Mercury as a leading provider in performance monitoring company that supplies BTO, a market that is projected to grow from $3.3 network-related intelligence to telecom operators. billion in 2004 to $6 billion in 2007. Appilog raised After a two year strategic partnership, Steleus will $13 million in two rounds since its founding in now form the cornerstone of Tekelec’s new 2000 (Poalim Ventures, Delta Ventures, Cedar Communications Software Solutions business Fund, Genesis Partners). unit. With almost 90% of its revenue coming from North America, Tekelec found Steleus’ footprint outside of the U.S. (100 operators in 35 countries) particularly attractive. Aggressively seeking

growth through acquisitions, Tekelec made two SEG’s Perspective: investments in network switching equipment WatchMark-Comnitel, a privately held provider of makers by buying a 52% controlling interest in solutions for wireless network performance Santera ($28 million) and completing its management solutions, acquires the Metrica acquisition of Taqua ($86 million) in April. Service Assurance Group from ADC Telecom, provider of network infrastructure equipment and WatchMark-Comnitel acquires Metrica Service services. With the addition of Metrica, Watchmark Assurance Group now boasts the largest worldwide installed base of Category: Network Performance Management wireless service assurance products. The Metrica Purchase Price: $41,624,000 unit is expected to report a 6.7% decline in Seller Revenue: $30,000,000 revenue for 2004 compared to 2003. For the first Revenue Multiple: 1.4x three quarters of 2004, Metrica lost $2 million, Payment Terms: Cash, Stock compared to a $5 million operating profit in its 2003 fiscal year. WatchMark paid $35 million in cash and the balance in stock, giving ADC less than 5% ownership in WatchMark.

THUMBNAIL OF ENTERPRISE SYSTEM MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple BMC Marimba $239,000,000 $40,880,000 5.8x Develops, markets and Software (NASDAQ: MRBA) supports software change (NYSE: BMC] management and software configuration management solutions Compuware Changepoint $100,000,000 $20,000,000 5.0x Business process automation (NASDAQ: CPWR) software for global services organizations and corporate IT departments EMC Corp. Allocity $10,000,000 $1,000,000 10.0x Service-centric approach to (NYSE: EMC) (estimate) network systems management

EMC Corp. SMARTS $260,000,000 $60,000,000 4.3x Service-centric approach to (NYSE: EMC) network systems management Hewlett- Novadigm $116,510,000 $52,100,000 2.2x Software solutions that Packard (NASDAQ: NVDM) automate configuration and (NYSE:HPQ) change management of digital assets, such as operating systems (OS), applications, content and configuration settings IBM Candle Corp. $435,000,000 $207,000,000 2.1x Software used to support, run, (NYSE: IBM) and monitor a variety of applications across networks Mercury Appilog $49,000,000 $4,000,000 12.3x Software for mapping and Interactive (estimate) managing (IT) assets (NASDAQ: MERQ) throughout enterprises NUVO Network $5,900,000 $3,500,000 1.7x Specializes in management, Network Performance monitoring and performance Management Services analysis of corporate data networks, Internet services and security

THUMBNAIL OF ENTERPRISE SYSTEM MANAGEMENT M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Quest Aelita $115,000,000 $30,000,000 3.8x Software and services for Software Software network management and (NASDAQ: QSFT) security administration, including applications for data migration, server consolidation, and directory management SERENA Merant plc $380,000,000 $128,300,000 3.0x Software products and Software (NASDAQ: MRNT) services for enterprise change (NASDAQ: SRNA) management TEKELEC Steleus Group $56,000,000 $25,000,000 2.2x Real-time performance (NASDAQ: TKLC) (estimate) management solutions providing network-related intelligence to telecom operators *Equity Value

HUMAN RESOURCE &WORKFORCE MANAGEMENT

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Kronos $91,140,000 $90,990,000 $74,830,000 $1,470,000,000 3.1x 20.0x (NASDAQ: KRON) Ultimate Software $25,160,000 $(3,040,000) $(6,610,000) $258,720,000 3.8x - (NASDAQ: ULTI) Workstream $7,150,000 $(3,410,000) $(3,780,000) $182,930,000 8.5x - (NYSE: WSTM) Median: $25,160,000 ($3,040,000) ($3,780,000) $258,720,000 3.8x 20.0x

REPRESENTATIVE CATEGORY TRANSACTIONS

Convergys (NYSE: CVG) acquires DigitalThink SEG’s Perspective: (NASDAQ: DTHK) JDA Software, a leading retail sector solution Category: Workforce Education provider, acquires Timera Retail Solutions, a Purchase Price: $105,000,000EV developer of workforce management solutions in Seller Revenue: $42,100,000 a $13 million, all cash deal. Timera stumbled in Revenue Multiple: 2.9x 2003 with revenue down sharply from 2002’s $8.3 Payment Terms: Cash, Stock million. Targeting primarily high-end retailers, JDA has beefed up its offering to include SEG’s Perspective: merchandising , collaboration, analytic and, now, Convergys, a Cincinnati Bell spinoff that is now a labor cost tracking applications to compete $2.3 billion global provider of outsourced against Peoplesoft, and Siebel. Look for additional customer billing and HR services, acquires acquisitions from JDA as it seeks to expand its DigitalThink, a provider of e-learning to the revenue base to spur a lethargic 6.1% LFY growth Fortune 1000. After issuing first quarter earnings rate. targets that fell below some analysts’ projections causing its share price to drop 5.8%, Convergys is ViryaNet (NASDAQ: VRYA) acquires Utility betting DigitalThink will help it retain customers Partners and aggressively expand its HR outsourcing business. The $120 million purchase price Category: Human Resource & Workforce represents a 30% premium to DigitalThink’s Management closing price immediately before the deal was Purchase Price: $5,200,000 announced. The timing was right for DigitalThink, Seller Revenue: $5,600,000 estimate which lost more then $10 million on $45 million in Revenue Multiple: 0.9x TTM revenue, as well as one of its biggest clients, Payment Terms: Cash, Stock EDS. Investors agreed, driving DigitalThink’s SEG’s Perspective: share price up 51% on deal day. ViryaNet, a developer of internet based software for managing service operations through JDA Software (NASDAQ: JDAS) acquires browsers, wireless devices, laptops, and PCs, Timera Retail Solutions acquires Utility Partners (UP), a mobile workforce Category: Workforce Management management solution provider for the utilities Purchase Price: $13,000,000 vertical. The acquisition eliminates a competitor Seller Revenue: $6,000,000 (estimate) in the utilities sector where ViryaNet has focused. Revenue Multiple: 2.2x ViryaNet, which hasn’t had a profitable fiscal year Payment Terms: Cash since 1996 and currently posts a $13.3 million market cap, financed the acquisition with 52% stock and the balance in cash. ViryaNet, whose TTM revenue is $13.4 million, will get a significant

boost from UP’s approximately $5.6 million in placement earmarked for growth, look for more revenue. The deal coincided with an acquisitions from Workstream. announcement by one of ViryaNet’s competitors, MDSI, which terminated its acquisition of mobile WorkStream (NASDAQ: WSTM) acquires resource management provider @Road. Kadiri Category: Enterprise Compensation Management WorkStream (NASDAQ: WSTM) acquires Purchase Price: $12,500,000 Bravanta Seller Revenue: $6,400,000 Category: Incentive Management Revenue Multiple: 2.0x Purchase Price: $5,600,000 Payment Terms: Stock Seller Revenue: $5,600,000 estimate Revenue Multiple: 1.0x SEG’s Perspective: Payment Terms: Stock WorkStream, a provider of hosted Enterprise Workforce Management software, acquires SEG’s Perspective: venture capital backed Kadiri, a developer of Workstream, a provider of hosted workforce Enterprise Compensation Mangement software. management solutions, acquires another WorkStream, with less than $4.4 million in the incentive management software company. This bank and $17 million in revenue, convinced Kadiri time it’s Bravanta, a San Francisco startup which shareholders to take $12.5 million in WorkStream has raised over $46 million from large VCs. The stock and potentially $2.7 million more in earnout. deal comes two months after Workstream’s In April, WorkSteam acquired PeopleView, an acquisition of compensation management solution OTC traded workforce management software provider Kadiri, and is WorkStream’s third buy this provider. The Enterprise Compensation year. WorkStream’s strategy is to grow through Management space has been unusually active, with Callidus (NASDAQ: CALD) going public in acquisition and seek a buyer when consolidated November 2003, and Advanced Information revenue reaches $35 million to $40 million. With Management being acquired by Authoria in May, Bravanto, WorkStream expects to add 300 blue 2004. chip customers and $9 million in revenue (a significant boost to its FY2003 $18 million total). With $10 million recently raised in a private

THUMBNAIL OF HUMAN RESOURCE &WORKFORCE MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple @Road MDSI $86,000,000 $47,380,000 1.8x Mobile workforce management (NASDAQ: ARDI) (NASDAQ: MDSI) solutions Convergys DigitalThink $120,000,000 42,100,000 2.9x E-learning solutions designed (NYSE: CVG) (NASDAQ: DTHK) to address the strategic business objectives of its customers by helping them to improve workforce development IceWEB DevElements $2,000,000 $3,000,000 0.7x Web-based employee (OTC: ICEW) productivity solutions for organizations with both long and short-term efficiency goals Indus Wishbone $6,650,000 $1,750,000 3.8x Field service management International Systems (estimate) software (NASDAQ: IINT)

THUMBNAIL OF HUMAN RESOURCE &WORKFORCE MANAGEMENT M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple JDA Software Timera Retail $13,000,000 $6,000,000 2.2x Workforce management (NASDAQ: JDAS) Solutions (estimate) specialists serving the Retail & Consumer Industries and the Transportation Industry ViryaNet Utility $5,200,000 $5,600,000 0.9x Integrated mobile software (NASDAQ: VRYA) Partners (estimate) applications and Web-based mobile workforce management solutions Witness Blue Pumpkin $75,000,000 $31,700,000 2.4x Workforce management Systems Software solutions (NASDAQ: WITS) Workstream Bravanta $5,600,000 $5,600,000 1.0x Industry leaders in enterprise (NASDAQ: WSTM) (estimate) incentive and recognition (EIR) programs Workstream Kadiri $12,500,000 $6,400,000 2.0x Enterprise compensation (NASDAQ: WSTM) (estimate) management solutions Workstream ProAct $9,730,000 $7,200,000 1.4x Web-based software and self (NASDAQ: WSTM) Technologies (estimate) service enrollment *Equity Value

SECURITY SOFTWARE

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Check Point $1,010,000,000 - - $4,821,905,600 9.9x 18.9x (NASDAQ: CHKP) Entrust $95,240,000 $1,650,000 $456,000 $133,119,250 1.5x 37.1x (NASDAQ: ENTU) Internet Security Systems $188,620,000 $57,150,000 $45,370,000 $869,140,900 3.1x 21.6x (NASDAQ: ISSX) McAfee $528,840,000 $271,110,000 $241,580,000 $3,832,332,750 4.1x 10.8x (NYSE: MFE) RSA Security $256,000,000 $52,420,000 $43,700,000 $1,270,137,600 4.3x 23.3x (NASDAQ: RSAS) Symantec $2,540,000,000 $1,100,000,000 $1,010,000,000 $34,008,797,600 15.3x 49.9x (NASDAQ: SYMC) Verisign 605,710,000 $314,140,000 $216,600,000 $4,821,905,600 9.9x 18.9x (NASDAQ: VRSN) Median: $392,420,000 $57,150,000 $45,370,000 $2,551,235,175 4.2x 22.4x

REPRESENTATIVE CATEGORY TRANSACTIONS

Computer Associates (NYSE: CA) acquires CyberGuard (NASDAQ: CGFW) acquires Netegrity (NASDAQ: NETE) Webwasher AG Category: Identity Management Category: Security Purchase Price: $340,000,000EV Purchase Price: $40,000,000 Seller Revenue: $90,260,000 Seller Revenue: $7,700,000 Revenue Multiple: 3.8x Revenue Multiple: 5.2x Payment Terms: Cash Payment Terms: Cash, Stock SEG’s Perspective: SEG’s Perspective: Computer Associates bolsters its identity and Cyberguard, a firewall and VPN vendor, continues access management offering by acquiring to expand into international markets, this time by Netegrity, the leader in extranet access acquiring Webwasher, a German security management. According to IDC, CA was the solutions provider. Webwasher, a technology market leader in identity and access management spin-off of Siemens AG, holds 40% of the Web in 2003 (with a 15% market share and $300 filtering market in Central Europe and was million in revenue), while Netegrity occupied fifth recently named the fastest-growing provider of place. The purchase price expectedly surpassed Web filtering solutions by IDC. Webwasher more Netegrity’s market cap on the day of than doubled its revenues from 2003 to 2002 and announcement, boosted by a competing bid from hopes for more of the same, in light of an earnout Oracle and strong M&A demand for security package worth an extra $10 million in stock. software providers. Netegrity brings CA a sizable Cyberguard has also seen impressive growth with base of enterprise customers, including big banks, a 48% year-over-year revenue increase and telcos, major manufacturers and health care record sales of $13 million in 1Q04. In 2003, providers. Seeking to capitalize on perceived Cyberguard acquired an Australian Linux security dissatisfaction with the merger among Netegrity and firewall provider (SnapGear) and a network customers, Hewlett-Packard offered them a hardware security solution from NetOctave. discount of 20% to 80% off its OpenView Identity Management Solution.

Juniper Networks (NASDAQ: JNPR) acquires software ($47 million), while acquiring intrusion NetScreen Technologies (NASDAQ: NSCN) detection companies Entercept ($120 million) and Category: Security IntruVert ($100 million). Purchase Price: $3,436,781,000EV Seller Revenue: $275,290,000 SteelCloud (NASDAQ: SCLD) acquires V-One Revenue Multiple: 12.5x (Pink Sheets: VNEC) Payment Terms: Stock Category: Network Security SEG’s Perspective: Purchase Price: $16,000,000 Juniper Networks, the second largest internet Seller Revenue: $4,000,000 router manufacturer, acquires internet security Revenue Multiple: 4.0x solution provider NetScreen Technologies in a Payment Terms: Stock deal valued at $3.8 billion. Noting the hefty 56% SEG’s Perspective: premium, the market drove down Juniper’s share Network security solution provider SteelCloud price 11% on deal day, slicing more then $456 acquires V-One, a developer of SSL VPN security million in deal value. That same day NetScreen’s software in an all stock transaction. V-One, which share price increased 36% to an all time closing claims to have spent $65 million in research and high. The amount Juniper is paying is nearly $1 development, has failed to significantly grow billion more then Juniper’s total cumulative revenue or reach profitability during the past 5 revenue last year. Why the big multiple? First, years. With only $28 thousand in cash remaining Juniper has focused primarily on the telecom on its balance sheet, V-One had little choice but market and now needs NetScreen to compete to sell. SteelCloud has had problems of its own in against bellwether Cisco in the lucrative this highly competitive space, with revenue government sector. Second, NetScreen has declining 42% over the last two quarters. The performed admirably, even in a tough economy, network security market is dominated by Cisco by boosting sales to $245 million last year, up with growing competition from Juniper, which is 77% from 2002. This acquisition puts pressure on capitalizing on its recent acquisition of NetScreen. the other major firewall/VPN provider, Check Point, to partner with a hardware provider. Check Symantec (NASDAQ: SYMC) acquires Point now becomes the only major player entirely Brightmail focused on network security. For the time being, Category: Anti-Spam Juniper and NetScreen will remain separate Purchase Price: $370,000,000 businesses, although eventually NetScreen’s Seller Revenue: $26,000,000 security will be embedded in Juniper’s routers. Revenue Multiple: 14.2x Payment Terms: Cash McAfee (NYSE: MFE) acquires Foundstone Category: Vulnerability Management SEG’s Perspective: Purchase Price: $86,000,000 Brightmail, a high flying anti-spam provider, opts Seller Revenue: $15,000,000 for a $370 million purchase by Symantec in lieu of Revenue Multiple: 5.7x a planned IPO, and receives a valuation Payment Terms: Cash reminiscent of days gone by. Despite significant revenue growth in the past four years, Brightmail SEG’s Perspective: posted its first profit ($1.2 million) in fiscal year Returning to its roots as a security software ending January ’04, with revenue jumping from company after a major restructuring, McAfee buys $12 million to $26 million. Symantec has had a Foundstone, a network-vulnerability management financial interest in Brightmail since 2000, when it company. Foundstone’s revenue growth has led a fourth-round ($35 million) of equity reportedly exceeded 100% per year. Foundstone investment, paying $18 million for an 11% stake will allow McAfee to fill a gap in its intrusion (giving Brightmail a $160 million post-money prevention offering and should yield abundant valuation). Brightmail receives 85% of its revenue cross-sell opportunities to Foundstone’s 400 from only 5% of its customer base, with Microsoft enterprise customers. Part of McAfee’s alone accounting for more than 10% of total makeover, including a change in name from revenue. Microsoft is now expected to build its Network Associates, involved selling its Sniffer product line ($235 million) as well as its help desk

own anti-spam software, as well as an antivirus after Symantec paid $370 million for anti-spam offering that will compete with Symantec. solution provider Brightmail. Symantec touts the two acquisitions as complementary, with Symantec (NASDAQ: SYMC) acquires TurnTide’s technology installed on network TurnTide routers to slow down a spam sender’s system, Category: Anti-Spam and Brightmail installed on the messaging Purchase Price: $28,000,000 network. The enterprise anti-spam market is Seller Revenue: $1,700,000 (estimate) expected to reach $979 million this year. Revenue Multiple: 16.5x TurnTide began business 5 months before the Payment Terms: Cash acquisition with $1 million in funding from founder Josh Kopelman, whose previous company SEG’s Perspective: Half.com was acquired by eBay for $241 million Enterprise security software provider Symantec only 6 months after its website went live. acquires TurnTide, a startup anti-spam software developer. The deal comes less than two months

THUMBNAIL OF SECURITY M&A TRANSACTIONS

Table 13: Select Security Transaction Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Applied eXI Wireless $13,130,000 $4,700,000 2.8x Provides security products and Digital (TSX: EXI) services, including radio Solutions frequency identification (RFID) (NASDAQ: ADSX) technologies

Cisco Perfigo $74,000,000 $2,000,000 37.0x Develops software and Systems applications that are used to (NASDAQ: CSCO) manage network security and control. Cisco Riverhead $39,000,000 $2,250,000 17.3x compares traffic flow to Systems Networks learned profiles of normal (NASDAQ: CSCO) traffic patterns, behavior, and protocol compliance for security attacks Computer Netegrity $430,000,000 $90,260,000 4.8x Identity and access Associates (NASDAQ: NETE) management International (NYSE: CA) CyberGuard Webwasher $40,000,000 $7,700,000 5.2x Develops products for the Corp. AG content security (NASDAQ: CGFW) management/policy enforcement tool market, and named the fastest-growing provider of Web filtering solutions by research firm IDC. Juniper Netscreen $4,000,000,000 $275,290,000 14.5x Sells a family of integrated Networks Technologies network security solutions for (NASDAQ: JNPR) (NASDAQ: NSCN) enterprises, carriers and government entities.

THUMBNAIL OF SECURITY M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple McAfee Foundstone $86,000,000 $15,000,000 5.7x Provides information (NYSE: MFE) technology security software and consulting services. SafeNet Datakey $8,000,000 $5,910,000 1.4x User access and (NASDAQ: SFNT) (OTCBB:DKEY) authentication products, including smart cards and security software. SAFLINK SSP Solutions $104,000,000 $14,600,000 7.1x Provides data security Corp. (NASDAQ: SSPX) solutions for government (NASDAQ: SFNT) communications systems.

SteelCloud V-ONE $16,000,000 $4,000,000 4.0x Client/server Virtual Private (NASDAQ: SCLD) (OTC: VNEC) Network technology.

Symantec Brightmail $370,000,000 $26,000,000 14.2x Protects the email networks of Corp. businesses, government (NASDAQ: SYMC) agencies, and service providers, blocking unsolicited bulk email, or "spam", Symantec TurnTide $28,000,000 $1,700,000 16.5x Anti-Spam Software Corp. (estimate) (NASDAQ: SYMC) Viisage Imaging $34,100,000 $6,000,000 5.7x Biometric authentication Technology Automation technologies. (NASDAQ: VISG)

*Equity Value

STORAGE MANAGEMENT

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) VERITAS Software $2,540,000,000 $600,290,000 $493,190,000 $7,723,473,400 3.9x 14.7x (NASDAQ: VRTS) EMC $2,450,000,000 $1,960,000,000 $1,600,000,000 $29,238,890,000 3.8x 19.9x (NYSE: EMC) StorageTech $1,060,000,000 $378,270,000 $327,440,000 $1,997,873,450 0.9x 6.9x (NASDAQ: STK) Network Appliance $921,730,000 $382,670,000 $306,670,000 $8,375,442,000 6.1x 31.5x (NASDAQ: NTAP) Falcon Star $32,900,000 $(4,550,000) $(7,250,000) $324,252,600 13.3x - (NASDAQ: FALC) Median: $1,060,000,000 $382,670,000 $327,440,000 $7,723,473,400 3.9x 17.3x

THUMBNAIL OF STORAGE MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Cisco Actona Tech. $82,000,000 $4,800,000 17.1x Software and technology for Systems (estimate) data storage across wide area (NASDAQ: CSCO) networks Iron Mountain Connected $117,000,000 $36,000,000 3.3x Leading provider of storage (NYSE: IRM) software for automated protection, archiving and recovery of distributed data Symantec VERITAS $13.5 billion $1,970,000,000 6.9x Supplier of storage and (NASDAQ: SYMC) Software infrastructure software (NASDAQ: VRTS) products and services *Equity Value

SUPPLY CHAIN MANAGEMENT

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Agile Software $191,810,000 $(19,340,000) $(24,300,000) $250,061,650.00 2.3x - (NASDAQ: AGIL) Descartes Systems $36,360,000 - - $47,226,900.00 0.9x - (NASDAQ: DSGX) JDA Software $95,480,000 $23,330,000 $11,350,000 $261,263,050.00 1.2x - (NASDAQ: JDAS) Manhattan Associates $149,180,000 $37,180,000 $30,560,000 $559,216,300.00 2.7x 15.0x (NASDAQ: MANH) Manugistics $118,040,000 $(3,370,000) $(7,640,000) $265,461,500.00 1.3x - (NASDAQ: MANU) Retek $75,320,000 $(11,330,000) $(13,400,000) $234,654,000.00 1.3x 27.2x (NASDAQ: RETK) Median: $106,760,000 -$3,370,000 -$7,640,000 $255,662,350 1.3x 21.1x

REPRESENTATIVE CATEGORY TRANSACTIONS

VerticalNet (NASDAQ: VERT) acquires market cap is a far cry from its 1999 IPO market B2eMarkets cap of $738 million. Category: Supply Chain Management and Logistics VerticalNet (NASDAQ: VERT) acquires Purchase Price: $12,963,603 Tigris Corp. Seller Revenue: $8,100,000 Category: Supply Chain Management Revenue Multiple: 1.6x Purchase Price: $9,279,690 Payment Terms: Stock Seller Revenue: $10,000,000 (estimate) Revenue Multiple: 0.93x SEG’s Perspective: Payment Terms: Cash, Stock VerticalNet, a former dotcom darling and operator of online vertical trade communities that is now a SEG’s Perspective: provider of strategic sourcing and supply chain Verticalnet, a strategic sourcing and supply chain software, acquires strategic sourcing software application vendor, acquires Tigris Corp., a maker, B2eMarkets (B2e). B2e complements sourcing and supply chain consultancy. Most VerticalNet’s previous 2004 acquisition of Tigris, a appealing to VerticalNet was Tigris’s data decision support optimization provider, and will intensive, tools-based approach to spend bring with it sorely needed new customers. analysis, which Aberdeen Group claims could VerticalNet, with new licenses accounting for only save enterprises $260 billion annually. The 3% of total revenue and four customers acquisition, which will double VerticalNet’s TTM responsible for 72% of total revenue over the last revenue comes none too soon. VerticalNet’s 6 months, convinced B2e to take its stock and a revenue declined 65% to $9.6 million in its last promissory note as payment. The united fiscal year. With only $4.2 million in cash on hand, company will be competing against the recently the company resorted to a net $6.2 million private combined Ariba/FreeMarkets, larger ERP placement less then two weeks before this deal software developers, and niche players in spend was announced. analytics, sourcing, and optimization. In an attempt to clean up its balance sheet and return to profitability, VerticalNet recently raised $3 million in a private placement. VerticalNet’s $32 million

THUMBNAIL OF SUPPLY CHAIN MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Global HAHT $30,000,000 $20,000,000 1.5x Leading provider of Demand eXchange Commerce (estimate) Chain Management Services applications that strategically automate, integrate and optimize order management Inovis QRS Corp. $116,000,000 $121,680,000 1.0x Company makes collaborative (NASDAQ: QRSI) software used by more than 8,000 retailers, vendors, and manufacturers to carry transactions, synchronize product information, and integrate processes Logility Demand $9,500,000 $10,000,000 1.0x Provides supply chain (NASDAQ: Management forecasting, demand planning LGTY) and inventory and replenishment systems under the Demand Solutions brand to small- and medium-sized businesses Retalix Ltd. OMI $18,600,000 $14,000,000 1.3x Leading provider of supply (NASDAQ: RTLX) International chain execution and electronic commerce solutions designed for complex, multi-warehouse, multi-facility installations Sterling Yantra $170,000,000 $32,600,000 5.2x Software for building and Commerce (estimate) managing private trading exchanges VerticalNet B2eMarkets $12,964,000 $8,100,000 1.6x B2eMarkets software put (NASDAQ: VERT) sourcing and procurement online VerticalNet Tigris $9,280,000 $10,000,000 0.9x Tigris developed custom (NASDAQ: VERT) (estimate) software that extracted and analyzed raw data, forecast sales, streamlined supply chains, and optimized pricing and buying strategies *Equity Value

VERTICAL SOFTWARE

THUMBNAIL OF PUBLIC CATEGORY LEADERS (HEALTHCARE) Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) QuadraMed $26,030,000 $(8,930,000) $(13,280,000) $61,588,500 0.4x - (AMEX: QD) VitalWorks $15,730,000 $4,430,000 $1,530,000 $185,330,850 1.7x - (NASDAQ: VWKS) NDCHealth $5,840,000 $59,970,000 $21,310,000 $940,177,600 2.1x 9.3x (NYSE: NDC) IDX Systems $124,580,000 $39,940,000 $16,710,000 $931,704,400 2.0x 18.8x (NASDAQ: IDXC) Eclipsys $122,990,000 $(14,530,000) $(27,990,000) $746,894,400 2.6x - (NASDAQ: ECLP) WebMD $207,220,000 $73,470,000 $43,840,000 $2,707,856,800 2.4x 26.1x (NASDAQ: HLTH) Cerner $137,220,000 $155,100,000 90,,990,000 $1,841,378,200 2.0x 9.8x (NASDAQ: CERN) Median: $26,030,000 $(8,930,000) $(13,280,000) $61,588,500 2.1x 18.8x

THUMBNAIL OF PUBLIC CATEGORY LEADERS (MANUFACTURING) Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Epicor Software 46,630,000 $ 22,580,000 $ 18,570,000 $742,577,400 3.7x 26.3x (NASDAQ: EPIC) MAPICS 26,410,000 $ 20,920,000 $ 19,640,000 $219,843,000 1.3x 6.7x (NASDAQ: MAPX) QAD 57,500,000 $ 22,780,000 $ 4,260,000 $254,629,200 1.1x 12.3x (NASDAQ: QADI) Aspen Technolgy 107,680,000 $ 40,420,000 $ 37,300,000 $207,909,100 0.6x - (NASDAQ: AZPN) Chinadotcom 202,820,000 - - $361,960,400 2.3x 66.7x (NASDAQ: CHINA) Median: $57,500,000 $22,680,000 $19,105,000 $254,629,200 1.3x 12.3x

REPRESENTATIVE CATEGORY TRANSACTIONS

Agilysys (NASDAQ: AGYS) acquires Inter- 50%, this is Agilysys’ second acquisition in five American Data months of a vertical market solution provider. Category: Hospitality Management There is some synergy, though, as Agilysys is an Purchase Price: $36,500,000 IBM Premier Business Partner, and IAD’s Seller Revenue: $40,000,000 solutions run on IBM platforms. With $319 million Revenue Multiple: 0.9x in cash remaining, look for additional Agilysys Payment Terms: Cash software acquisitions in the coming months. SEG’s Perspective: Agilysys, a distributor and reseller of enterprise computer systems, acquires Inter-American Data (IAD), a provider of property and materials management software to casinos and major resorts. Seeking to redefine itself due to shrinking hardware margins and a TTM revenue decline of

Cerner (NASDAQ: CERN) acquires VitalWorks Kintera (NASDAQ: KNTA) acquires Medical Division Carol/Trevelyan Strategy Group Category: Medical Practice Management Category: Nonprofit Vertical Software Purchase Price: $5,250,000 Purchase Price $100,000,000 Seller Revenue: $5,200,000 Seller Revenue $70,000,000 Revenue Multiple: 1.0x Revenue Multiple 1.4x Payment Terms: Stock, Cash Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Kintera, a software as a service provider to Cerner, a leading provider of healthcare nonprofit organizations, acquires Carol/Trevelyan Strategy Group, a provider of online fundraising information technology, acquires Vital Works’ and advocacy solutions. It’s Kintera’s thirteenth Medical Division (VMD), a provider of physician acquisition, the second since its IPO, both coming practice management and medical records in the month of March. Kintera used restricted software. Cerner, an $840 million company which stock for both purchases, capitalizing on its has traditionally targeted hospital and clinics, will extraordinary market valuation ($366 million on $8 gain access to some 30,000 physicians who are million TTM revenue), this time paying $5 million VitalWorks customers. The market for physician in stock and $250 thousand in cash. As a result office management and clinical systems was of the two acquisitions, Kintera has increased its estimated by Foreter Research to be $1.7 billion TTM revenue 1.7x, broadened its offering, and in 2003. 71% ($50 million) of VMD’s total revenue expanded its customer base. With $35 million in is recurring, giving Cerner a significant hedge cash still remaining from its IPO, and companies should integration complications arise. The willing to accept Kintera stock as payment, look acquisition is expected to close in the first quarter for the company to continue its buying spree. and be accretive in 2005. Kintera (NASDAQ: KNTA) acquires Prospect Harris Corporation (NYSE: HRS) acquires Information Network Category: Nonprofit Vertical Encoda Systems Purchase Price: $3,630,000 Category: Enterprise Resource Planning Seller Revenue: $4,500,000 Purchase Price: $340,000,000 Revenue Multiple: 0.81x Seller Revenue: $124,000,000 Payment Terms: Stock Revenue Multiple: 2.7x Payment Terms: Cash SEG’s Perspective: Kintera, a provider of software as a service to SEG’s Perspective: nonprofit organizations, acquires Prospect Communications technology behemoth Harris Information Network (PIN), a developer of donor Corporation acquires Encoda Systems, a software to nonprofit fundraisers. Kintera adds developer of enterprise software solutions for the 500 clients to its roster and boosts its $8 million in broadcast media industry, including television, revenue almost 50% by paying $3.4 million in radio, cable, and satellite broadcasting stock and assuming $230,000 in PIN debt. companies. Encoda serves some 600 customers Although Kintera lost $10 million in 2003, and $31 in 34 countries and is owned by Thomas H. Lee million since its founding four years ago, that Partners, Blackstone Capital Partners and others. hasn’t stopped Kintera from pursuing a frenetic The acquisition will leverage Harris’ existing acquisition strategy – 12 in the last 4 years. This broadcast communications business and expand is Kintera’s first acquisition since its 2003 IPO, its market reach into new cable and satellite which raised $35 million. The company is facing markets. Harris spent a significant portion of the increasing competition from smaller niche $563 million in cash on its balance sheet to companies, as well as larger public companies acquire Encoda. such as Siebel, Peoplesoft, and Microsoft.

Kintera (NASDAQ: KNTA acquires Siebel Systems (NASDAQ: SEBL) acquires Intuit’s American Fundware Division Eontec Limited Category: Nonprofit Accounting Category: Banking Software Purchase Price $11,000,000 Purchase Price: $70,000,000 Seller Revenue $12,800,000 Seller Revenue: $25,000,000 Revenue Multiple 0.9x Revenue Multiple: 2.8x Payment Terms Cash Payment Terms: Cash SEG’s Perspective SEG’s Perspective: Kintera, the highly acquisitive provider of software Siebel Systems acquires Ireland-based Eontec, a as a service to nonprofits, acquires American provider of multichannel retail banking solutions, Fundware, a subsidiary of Intuit that develops its nineteenth acquisition since 1997 and third accounting software for nonprofit organizations since last fall. Siebel has targeted banking as a and governments. Intuit, which acquired key vertical for its CRM offering, but needed a American Fundware in 2002 for $23.3 million, multichannel solution to compete effectively in the cited lack of sales growth as the reason for sector. For Eontec, the acquisition comes none shedding the unit. Kintera picks up, for less than too soon, after struggling to penetrate the U.S. 1.0x, the leading financial management solution market and cutting its workforce by half since for nonprofits and significantly enhances both its 2001. In addition to $70 million cash payment at product suite and market presence. Electing to closing, the deal includes a possible $60 million preserve the $47 million in cash on its balance earnout, a veritable pot of gold at the end of the sheet, Kintera sold 2.5 million shares of common rainbow. Since its founding in 1994, Eontec has stock in a private placement to finance the $11 received at least $35 million in VC financing from million purchase. This is Kintera’s 12th acquisition Warburg Pincus, ICC Venture Capital, and other since September 2003. investors.

QuadraMed (AMEX: QD) acquires Tempus Trinity Ventures acquires SciQuest Software (NASDAQ: SQST) Category: Supply Chain & Logistics Category: HealthCare EV Purchase Price: $13,220,590 Purchase Price: $12,170,000 Seller Revenue: $3,400,000 (estimate) Seller Revenue: $6,630,000 Revenue Multiple: 3.9x Revenue Multiple: 1.8x Payment Terms: Cash, Stock Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: QuadraMed, a healthcare information technology Trinity Ventures, a Menlo Park based venture provider, acquires Tempus Software, a privately capital firm, acquires SciQuest, a provider of held developer of patient access and enterprise procurement software for the life sciences and scheduling solutions for the healthcare industry. education markets. SciQuest reported a net loss With Tempus, QuadraMed seeks to beef up its of $16.6 million on revenue of $6.6 million in Hospital Information Systems offering and gain 2003, compared with a stunning loss of $70.8 access to 350 healthcare facilities in the U.S. and million on revenue of $6.5 million in 2002. Canada. Although QuadraMed lost almost $7 SciQuest shares traded as high as $90 shortly million on revenue of $132 million (TTM) and has after the company went public in 1999, but posted a year-end profit only twice in the last 10 plummeted to 65 cents in May 2003 before it years, Tempus shareholders agreed to take $5.8 instituted a 7.5-for-1 reverse split, pushing the million in cash and 2,558,824 shares of stock price to $4.87 post-split. The purchase QuadraMed common stock. Earlier in June, price represents a 55% premium over SciQuest’s QuadraMed raised $94 million in a private closing price before announcement, which surged placement to pay down debt. 47% on news of the deal.

Varian Medical Systems (NYSE: VAR) acquires SEG’s Perspective: OpTx In its fourth acquisition in less then a year, Category: Healthcare Vertical WebMD bolsters its transaction services Purchase Price: $18,000,000 department (WebMD Envoy) by acquiring Dakota Seller Revenue: $9,000,000 Imaging, provider of automated healthcare claims Revenue Multiple: 2.0x processing technology and services. Dakota has Payment Terms: Cash grown its revenue an estimated 18.2% YOY and posted an EBITDA of $2.8 million in 2003. SEG’s Perspective: Dakota hopes for more of the same, since the Varian Medical Systems, a provider of software deal includes a potential $25 million earnout. for cancer radiation therapy, acquires OpTx, a With $846 million in cash, plus the recent developer of oncology-specific practice and placement of $100 million worth of convertible patient management software. Varian anticipates debt with a CalPERS-backed fund, look for more OpTx will initially add about $9 million to its $1 acquisitions in the near future by WebMD. billion in revenue, a modest contribution at best, but the acquisition provides Varian both market WebMD (NASDAQ: HLTH) acquires ViPS leverage and competitive differentiation. Varian Category: Healthcare Management Software gains ownership of a valued strategic partner Purchase Price: $160,000,000 whose software it has sold since 2001 under a Seller Revenue: $58,300,000 private label agreement. Varian also gains a Revenue Multiple: 2.7x competitive advantage against its rival, GE Payment Terms: Cash Medical Systems, which was also an OpTx strategic partner. Varian’s revenue increased SEG’s Perspective: 29% to $267 million and net income 39% to $29 Continuing an acquisition spree of 22 companies million in fourth quarter 2003. in 2002 and 12 companies in 2003, WebMD acquires ViPS, a provider of decision support, WebMD (NASDAQ: HLTH) acquires Dakota claims processing and fraud prevention solutions Imaging to the Government, Blue Cross – Blue Shield Category: Healthcare Management Software plans and commercial health payers. In addition Purchase Price: $40,000,000 to providing ready access to these key target markets, ViPS will add some $17 million to Seller Revenue: $17,500,000 WebMD’s bottom line. The $160 million purchase Revenue Multiple: 2.3x price includes certain assumed liabilities and will Payment Terms: Cash, Stock be paid in cash. Once a subsidiary of First Data, ViPS was taken private by investment firm Cornerstone Equity Investors in 1998 for $48 million with revenue of approximately $24.5 million.

THUMBNAIL OF VERTICAL M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Agilysys Inter- $36,500,000 $40,000,000 0.9x Software products with a focus (NASDAQ: AGYS) American on hotel casinos and major Data resorts. Major product lines include the PMS property management system; the MMS materials management system; and the DMS document management system

THUMBNAIL OF VERTICAL M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Amex ORTHOsoft $18,548,746 $9,126,000 2.0x Solutions for Computer Exploration Assisted Surgery to hospitals and surgeons. The company has focused on the Computer Assisted Orthopaedic Surgery market niche Captiva ADP Context $5,200,000 $3,500,000 1.5x Develops solutions to help Software (estimate) solve complex medical claims Corp. coding, editing and (NASDAQ: CPTV) reimbursement challenges in the healthcare industry Cerner VitalWorks $100,000,000 $70,000,000.00 1.4x Medical practice management (NASDAQ: CERN) Mediacal software Division Evolving Telecom $2,400,000 $1,000,000 2.4x Provides software solutions Systems Software (estimate) and services for implementing (NASDAQ: EVOL) Enterprises and maintaining Number Portability Infrastructure Evolving Tertio $40,700,000 $19,700,000 2.1x Provider of Operations Support Systems Telecoms, Systems software that enables (NASDAQ: EVOL) Ltd. telecom network operators to improve the efficiency of delivering and charging for new services over new technologies Harris Corp. Encoda $340,000,000 $124,000,000 2.7x Software that television, radio, (NYSE: HRS) Systems cable, and satellite broadcasting companies use to manage sales, advertising, programming, and financial operations, as well as electronic invoicing and contracting Input / Output Concept $46,768,800 $12,000,000 3.9x Supplier of advanced IT (NYSE: IO) Systems Ltd. systems, solutions and services to the oil exploration and production industry Input / Output GX $150,000,000 $49,000,000 3.1x Solutions which include (NYSE: IO) Technology seismic acquisition, time Corp. processing, pre-stack depth and time imaging, 4D and multi-component services to the oil & gas industry Island Pacific Retail $11,000,000 $9,000,000 1.2x Provider of retail management (AMEX: IPI) Technologies store solutions to small through International mid-tier retailers Kintera Carol / $5,250,000 $5,200,000 1.0x Online fundraising and (NASDAQ: KNTA) Trevelyan advocacy solutions

THUMBNAIL OF VERTICAL M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Kintera Intuit’s $11,000,000 $12,800,000 0.9x American FundWare was a (NASDAQ: KNTA) American subsidiary of Intuit provides Fundware Div. financial management software to Nonprofit customers Kintera KindMark $572,836 $695,000 0.8x Software used to manage (NASDAQ: KNTA) customer's philanthropy efforts and employee giving programs Kintera Prospect $3,630,000 $4,500,000 0.8x Donation software for nonprofit (NASDAQ: KNTA) Information organizations Network MapInfo Southbank $20,800,000 $12,000,000 1.7x Asset management solutions Corp. Systems Ltd. to the infrastructure industry (NASDAQ: MAPS) Open EastPoint $7,000,000 $2,800,000 2.5x Software and data processing Solutions Technologies provider for financial (NASDAQ: OPEN) institutions QuadraMed Tempus $13,220,000 $3,400,000 3.9x Provides scheduling, patient Corp. Software (estimate) pre-registration, resource (AMEX: QD) management, on-line medical necessity verification, physician Web scheduling and automated call-back reminder solutions Sabre SynXis Corp. $40,000,000 $11,600,000 3.4x Reservation Management (NYSE: TSG) (estimate) System lets hotel operators consolidate and manage hotel inventory Siebel Eontec $70,000,000 $25,000,000 2.8x Retail and corporate financial Systems Limited solutions for banks, including (NASDAQ: SEBL) branch renewal, lending, payments, wealth management and credit card services. These can be deployed across multiple channels such as the Internet, wireless devices, call centers, ATMs and branches TGS-NOPEC NuTec $11,250,000 $10,600,000 1.1x Specializes in finite difference Geophysical Sciences time and depth domain imaging of seismic data using its own proprietary technology and patented techniques Trinity SciQuest $25,250,000 $6,630,000 3.8x Spend management for the life Ventures (NASDAQ: SQST) sciences and higher education markets Varian OpTx $18,000,000 $9,000,000 2.0x Patient and practice Medical management solutions for Systems large and small oncology (NYSE: VAR) practices Verint ECtel Ltd. $35,000,000 $28,900,000 1.2x Monitoring and revenue Systems assurance solutions for (NASDAQ: VRNT) converged telecommunications networks

WIRELESS SOFTWARE

THUMBNAIL OF PUBLIC CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) @Road $114,780,000 $12,050,000 $10,750,000 $191,940,000 2.7x 24.0x (NASDAQ: ARDI) Intellisync Corp. $52,680,000 $(5,360,000) $(6,550,000) $142,260,000 3.1x - (NASDAQ: SYNC) Openwave Systems $225,670,000 $(48,850,000) $(56,830,000) $907,400,000 2.7x - (NASDAQ: OPWV) Extended Systems $7,120,000 $(2,810,000) $(3,960,000) $51,530,000 1.5x - (NASDAQ: XTNDE) Median: $83,730,000 -$4,090,000 -$5,260,000 $167,100,000 2.7x 24.0x

REPRESENTATIVE CATEGORY TRANSACTIONS

Cisco (NASDAQ: CSCO) acquires Dynamicsoft Sybase (NYSE: SY) acquires XcelleNet Category: Wireless and Networking Software Category: Mobile Middleware Purchase Price: $55,000,000 Purchase Price: $95,200,000 Seller Revenue: $16,700,000 Seller Revenue: $30,000,000 Revenue Multiple: 3.3x Revenue Multiple: 3.2x Payment Terms: Stock, Cash Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Cisco Systems, continuing to target broadband Sybase accelerates its push into mobile service providers, acquires dynamicsoft, a middleware with the purchase of mobile and developer of communications protocol that is the remote device management provider XcelleNet. basis for many mobile and Internet Sybase revenue slid from $964 million in 2000 to communications. dynamicsoft products enable $778 million in 2003 after losing a chunk of its service providers to deploy premium integrated database business to Microsoft SQL Server. It’s a big multiple, and a big bet for Sybase, which may communications services, including instant use 17% of its total cash assets to aggressively messaging, text chat and email. Bringing new grow a business unit (iAnywhere) that contributed revenue generating solutions to the carrier market 11% of total revenue last year. The seller, will help Cisco stave off stiff competition from Francisco Partners, bought XcellNet in 2000 from voice technology veterans Nortel Networks, Sterling Commerce for $50 million, a few years Lucent Technologies, Alcatel and Siemens. The after Sterling acquired it for $200 million. all cash purchase price, which includes the assumption of $3.8 million in debt, was a relative bargain for Cisco, which often pays hefty acquisition multiples. Since 1999/2000, dynamicsoft received $64 million in funding from an array of first tier VCs.

THUMBNAIL OF WIRELESS M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple BIO-key Aether’s $10,000,000 $21,000,000 0.5x Wireless and mobile International Mobile (estimate) computing products for federal, (OTC: BKYI) Government state and local government Division Birdstep Alice Systems $38,620,000 $5,426,000 7.1x Enable applications like email Technology AB and web access on PCs, laptops and PDAs, to be easy to use and access, when communicating over WLAN ,fixed and 3G networks Cisco Dynamicsoft $55,000,000 $16,700,000 3.3x Responsible for the Systems (estimate) communications protocol that (NASDAQ: CSCO) is the basis for many mobile and Internet communications, including instant messaging, text chat, and voice calls Infowave Telispark $8,400,000 $6,250,000 1.3x Configurable applications that Software (estimate) integrate business processes (TSX:IW.TO) across ERP, Field Service, Supply Chain, and Asset Management iPass Mobile $20,000,000 $3,900,000 5.1x IT solutions for managing (NASDAQ: IPAS) Automation (estimate) mobile devices: laptops, palmtops and handheld PCs QUALCOMM Trigenix $36,000,000 $4,900,000 7.3x Multimedia software developer Incorporated (estimate) for mobile communications (NASDAQ: QCOM) specializing user interfaces for mobile phones. Its interfaces allow users to personalize their mobile phones Sybase XcelleNet $95,200,000 $30,000,000 3.2x Software enables customers to (NASDAQ: SY) collect and exchange data with remote locations, such as branch offices, kiosks, and retail locations. Also provides management tools for mobile devices, allowing IT staff to manage mobile devices (such as laptops, handhelds, and smart phones) from a central location, administering functions such as data backup and software deployment WatchMark- Metrica $41,624,000 $30,000,000 1.4x Wireless service assurance Comnitel Service products Assurance Group YDI Wireless KarlNet $9,800,000 $3,800,000 2.6x Grown from Internet firewall (OTC: YDIW) and security solutions to a provider of wireless software and systems *Equity Value

MISCELLANEOUS TRANSACTIONS

Ask Jeeves (NASDAQ: ASKJ) acquires Asian markets. OSA has received more than $19 Interactive Search million in equity financing from the likes of Dell, Category: Internet Search Intel Capital, VC’s and Taiwan Manufacturers. Purchase Price: $342,603,000 Seller Revenue: $100,000,000 Bain Capital, Silver Lake Partners, Warburg Revenue Multiple: 3.4x Pincus acquires UGS PLM Solutions Payment Terms: Cash, Stock Category: Product Design Management Purchase Price: $2,050,000,000 SEG’s Perspective: Seller Revenue: $897,000,000 Consolidation continues amoung search engine Revenue Multiple: 2.3x providers, as Ask Jeeves acquires competing Payment Terms: Cash internet search company Interactive Search Holdings (ISH), the owner of the Excite, iWon, SEG’s Perspective: and MySearch websites. Investors responded In a quest for cash to offset its $5 billion in debt, favorably to this deal. Originally worth $328 Electronic Data Systems’ (EDS) sells its product million when tendered, valuation grew to more design management-software unit, UGS PLM then $420 million after Ask Jeeves shares jumped Solutions, to private buyout firms Bain Capital, 40% on deal day to $29.01 – a 877% increase Silver Lake Partners and Warburg Pincus. Each since the beginning of 2003. Ask Jeeves, which will reportedly invest $350 million cash and take lost $699 million during its first six years in an equal stake. Citigroup Global Markets Inc., business but is now profitable, raised the $115 J.P. Morgan Chase & Co. and Morgan Stanley million cash purchase price by issuing zero have agreed to provide roughly $1.2 billion in coupon convertible subordinated notes back in senior bank debt and high yield bonds. The $2.05 June. Ask Jeeves reported revenue of $107 billion price amounts to 2.3x UGS’ $897 million million and an operating profit of $25 million while trailing revenue in 2003, and 10.2x current ISH had revenues of $140 million and profit of $35 EBITDA (roughly $200 million). UGS’ 42,000 million. The acquisition doubles Ask Jeeves customers and 8% annual revenue growth market share to 7% and gives them an annual brought an array of interested parties to the table. search inventory equal to 21 days worth of The UGS deal is the largest technology private Google’s traffic. equity investment since the $2 billion purchase of Seagate Technology Inc.’s disk-drive business in Avocent (NASDAQ: AVCT) acquires OSA 2000. Technologies Category: Firmware Electronics for Imaging (NASDAQ: EFII) Purchase Price: $100,000,000 acquires Automated Dispatch Systems Seller Revenue: $6,250,000(estimate) Category: Asset/Service Management Purchase Price: $11,500,000 Revenue Multiple: 16.0x Seller Revenue: $5,000,000 (estimate) Payment Terms: Cash, Stock Revenue Multiple: 2.3x SEG’s Perspective: Payment Terms: Cash Avocent, supplier of KVM (keyboard, video and SEG’s Perspective: mouse) switching and connectivity solutions, Electronics for Imaging (EFI), global provider of expands into a new market by acquiring OSA digital imaging and print management solutions Technologies, provider of embedded firmware for commercial and enterprise printing, acquires and software to manage servers, blades, Automated Dispatch Systems (ADS), a provider of networks and storage devices. The $100 million service tech dispatch software targeted at the purchase price ($52 million cash and $48 million photocopier repair market. EFI’s Intelligent Device stock) represents a hefty premium over OSA’s Management software automatically monitors revenue (estimated at less than $10 million), but customers’ consumables use and provides will extend Avocent into a new, higher end/higher continuous remote diagnostics and margin market. OSA, with offices in Shanghai troubleshooting. When something is amiss, ADS and Taipei, also offers Avocent more exposure to

software will automatically dispatch a repair to refuse data exchanges with EDI systems. In technician. After acquiring Printcafe Software and 2000, ICC shares traded at $90; today its shares T/R Systems in 2003, EFI has seen its revenue trade at $1.17. growth plummet 32% over the last fiscal year and is seeking incremental revenue opportunities InfoSpace (NASDAQ: INSP) acquires targeted at the print industry. Look for additional Switchboard (NASDAQ: SWBD) EFI acquisitions in the coming months; the $11.5 Category: Internet Tools/Utilities million cash deal won’t make much of a dent in its Purchase Price: $104,150,000EV $624 million cash reserve. Seller Revenue: $15,190,000 Revenue Multiple: 10.5x FindWhat.com (NASDAQ: FWHT) acquires Payment Terms: Cash Comet Systems SEG’s Perspective: Category: Internet Tools/Utilities In a drive to increase its share of the $450 million Purchase Price: $18,580,000EV online local directory market, Internet and wireless Seller Revenue: $8,500,000 solution provider Infospace acquires Switchboard, Revenue Multiple: 2.2x a provider of online business directories Payment Terms: Cash, Stock advertising products. InfoSpace expects SEG’s Perspective: Switchboard to add $10 million to $12 million in FindWhat.com, a provider of marketing and e- revenue and between $4 million to $5 million in commerce services, including online search and directory income during the second marketplaces, acquires Comet Systems, a half of 2004. Local search has become a hot area developer of free download consumer software for Internet companies, with Google and Yahoo and a fee-based desktop search engine. each introducing new tools in the past month. FindWhat, which derives most of its revenue from With revenue of $15 million, the $160 million all a keyword-targeted internet advertisement cash price represented a 28% premium over a service, hopes its advertisers will pay more in very healthy market cap of $147 million, and was order to gain access to the 100 million who have received favorably by investors. Switchboard’s downloaded Comet’s pop-up blocker and surf price leaped 28% on deal day, while Infospace’s privacy software. Comet stockholders will receive price jumped 14%. $8.5 million in cash (equal to Comet’s 2003 net revenue) plus $15 million in FindWhat stock and Marchex acquires Name Development up to $10 million in cash based on 2004 and 2005 Category: Internet Domain Names operating performance. Purchase Price $164,000,000 Seller Revenue $19,000,000 Internet Commerce Corporation (NASDAQ: Revenue Multiple 8.6x ICCA) acquires Electronic Commerce Systems Payment Terms: Cash Category: EDI Software SEG’s Perspective: Purchase Price: $2,500,000 Marchex, a provider of technology-based services Seller Revenue: $1,700,000 to merchants engaged in online transactions, Revenue Multiple: 1.5x acquires Name Development, a British Virgin Payment Terms: Stock Islands entity that owns thousands of Internet SEG’s Perspective: domains that match commercial search terms, Internet Commerce Corporation (ICC), provider of drawing 17 million unique visitors each month. an internet based value-added network for XML Marchex plans to use the acquisition to expand and EDI file transfers, acquires Electronic into direct navigation, where consumers type the Commerce Systems (ECS), developer of EDI domain name of a website directly into the software and internet-based application services. address box of an internet browser and are met ICC, a small player seeking a foothold in the EDI with advertising or a redirect. Name Development market, valued ECS’ presence in retail. ICC is is projected to have more than $19 million in hoping to boost revenue, which decreased 15% revenues this year, with operating margins over its last fiscal year, by acquiring such blue expected to top 80% - yielding about twice as chip ECS customers as Wall-Mart. ICC’s low cost much cash flow as Marchex. Marchex, with only internet approach to EDI has caused competitors $25 million in the bank, is financing the

transaction by raising $180 million in a secondary Yahoo (NASDAQ: YHOO) acquires Kelkoo SA offering only eight months after its IPO. Category: Internet Tools/Utilities Purchase Price: $576,000,000 Platinum Equity Holdings acquires Seller Revenue: $50,000,000 CompuCom Systems (NASDAQ: CMPC) Revenue Multiple: 11.5x Category: Computer and IT Services Payment Terms: Cash Purchase Price: $141,176,000EV Seller Revenue: $1,420,000,000 SEG’s Perspective: Revenue Multiple: 0.1x Yahoo expands both its geographical reach and Payment Terms: Cash search-related marketing services by acquiring Kelkoo SA, a major European comparison SEG’s Perspective: shopping site. Founded in France in 1999, Technology buyout firm Platinum Equity, adds to Kelkoo grew through a series of rapid acquisitions its portfolio of operating companies by picking up in the U.K., Spain and Norway, and now operates computer and IT consulting firm CompuCom in 9 European countries with 32 million unique Systems. Safeguard Scientifics, a buyout firm users monthly. While the $578 million all-cash that owns 58% of CompuCom and has invested purchase price (41 times 2003 cash flow and 11 $67 million in the company since 1984, stands to times last year’s sales) leaves some observers make $128 million on the deal. The purchase breathless, at least a few analysts believe price, a discount of 5% over CompuCom’s pre- Kelkoo’s revenue and cash flow will double in announcement closing price but a multiple of 2004. They also see the acquisition as necessary EBITDA in line with the current market, did not sit for Yahoo to fend off fierce competition from rivals well with investors, who drove CompuCom’s Google and Microsoft. The Kelkoo deal follows share price down 7% on the news. Platinum Yahoo’s December 2002 acquisition of search plans to take the company private and operate it engine provider Inktomi for $235 million, and its as a standalone company. July 15, 2003 acquisition of Overture Services, a leader in paid-search listings, for a whopping $1.6 ScanSoft (NASDAQ: SSFT) acquires ART, billion. Phonetic, Rhetorical Category: Voice Recognition Software Yahoo! (NASDAQ: YHOO) acquires Purchase Price: $63,200,000 MusicMatch Seller Revenue: $13,200,000 (estimate) Category: Online Entertainment Software Revenue Multiple: 4.8x Purchase Price: $160,000,000 Payment Terms: Cash, Stock Seller Revenue: $24,400,000 Revenue Multiple: 6.6x SEG’s Perspective: Payment Terms: Cash Scansoft, a leading provider of speech and imaging solutions, acquires three speech SEG’s Perspective: recognition software vendors (Advanced Leading Internet portal player Yahoo! acquires Recognition Technologies ($6.7 million), Phonetic MusicMatch, a digital music store and provider of Systems ($35 million), and Rhetorical Systems digital music management products. Yahoo ($21.5 million). ART develops voice based and expects to see its music audience increase from 12.9 million listeners to an estimated 23 million writing recognition programs for wireless devices; listeners after Musicmatch is integrated into Phonetic Systems develops text to speech Yahoo Launch. Look for Yahoo to quickly solutions and is a provider of automated directory subsidize these low-margin music downloads with assistance and speech recognition systems for higher-margin advertising and subscriptions. telecom carriers and the Fortune 1,000. Scansoft, Yahoo faces stiff competition from a host of with one profitable quarter in the last six, is competitors, including RealNetworks, Napster, stretched thin. With only $47.7 million in cash on Wal-Mart, Sony, Microsoft and eBay. The clear hand, Scansoft will pay an aggregate $27.4 leader, for now, is Apple’s iTunes, with 70% of the million at closing and defer payment of $34 million music download market. until later years. The deal also includes an earnout of up to $35 million over a three years EV: Enterprise Value

APPENDIX C: SEG-100 COMPANIES

Actuate Descartes Systems Lightbridge, Inc. NASDAQ: ACTU NASDAQ: DSGX NASDAQ: LTBG

Adobe E.piphany Macromedia NASDAQ: ADBE NASDAQ: EPNY NASDAQ: MACR

Agile Software Eclipsys Manhattan Associates NASDAQ: AGIL NASDAQ: ECLP NASDAQ: MANH

Ansys EMC Manugistics NASDAQ: ANSS NYSE: EMC NASDAQ: MANU

Art Technology Group Entrust MAPICS NASDAQ: ARTG NASDAQ: ENTU NASDAQ: MAPX

Ascential Software Epicor Software MCAFEE NASDAQ: ASCL NASDAQ: EPIC NASDAQ: MFE

Aspect Communications Fair Isaac Mentor Graphics NASDAQ: ASPT NYSE: FIC NASDAQ: MENT

Aspen Technolgy Falcon Star Mercury Interactive NASDAQ: AZPN NASDAQ: FALC NASDAQ: MERQ

Autodesk FileNet Micromuse NASDAQ: ADSK NASDAQ: FILE NASDAQ: MUSE

BEA Systems Hummingbird Ltd. Microsoft NASDAQ: BEAS NASDAQ: HUMC NASDAQ: MSFT

BMC Software Hyperion Solutions Mro Software NYSE: BMC NASDAQ: HYSL NASDAQ: MROI

Borland IDX Systems MSC.Software NASDAQ: BORL NASDAQ: IDXC NYSE: MNS

Business Objects Informatica NDCHealth NASDAQ: BOBJ NASDAQ: INFA NYSE: NDC

Cadence Design InfoSpace Netiq NYSE: CDN NASDAQ: INSP NASDAQ: NTIQ

Cerner Intergraph Network Appliance NASDAQ: CERN NASDAQ: INGR NASDAQ: NTAP

Check Point Internet Security Systems Novell NASDAQ: CHKP NASDAQ: ISSX NASDAQ: NOVL

Chinadotcom Interwoven Onyx Software NASDAQ: CHINA NASDAQ: IWOV NASDAQ: ONXS

Chordiant Software Intuit Oracle NASDAQ: CHRD NASDAQ: INTU NASDAQ: ORCL

Cognos Jack Henry Parametric NASDAQ: COGN NASDAQ: JKHY NASDAQ: PMTC

Computer Associates JDA Software Group PeopleSoft NYSE: CA NASDAQ: JDAS NASDAQ: PSFT

Compuware Lawson Software Plumtree NASDAQ: CPWR NASDAQ: LWSN NASDAQ: PLUM

Progress Software Verisign NASDAQ: PRGS NASDAQ: VRSN

QAD VERITAS Software NASDAQ: QADI NASDAQ: VRTS

QuadraMed Verity AMEX: QD NASDAQ: VRTY

Quest Software Vignette NASDAQ: QSFT NASDAQ: VIGN

Real Networks VitalWorks NASDAQ: RNWK NASDAQ: VWKS

Red Hat Vitria Technology NASDAQ: RHAT NASDAQ: VITR

Retek Watchguard Tech. NASDAQ: RETK NASDAQ: WGRD

Rsa Sec Inc WebMD NASDAQ: RSAS NASDAQ: HLTH

SAP WebMethods NYSE: SAP NASDAQ: WEBM

SCO Group Websense NASDAQ: SCOX NASDAQ: WBSN

Secure Computing Wind River Systems NASDAQ: SCUR NASDAQ: WIND

Serena Software NASDAQ: SRNA

Siebel Systems NASDAQ: SEBL

Stellent NASDAQ: STEL

StorageTech NYSE: STK

Sungard Data Systems NYSE: SDS

Sybase NYSE: SY

Symantec NASDAQ: SYMC

Synopsys NASDAQ: SNPS

TIBCO Software NASDAQ: TIBX

VA Software Corp. NASDAQ: LNUX